The closure of more department stores in malls and consolidation may well lead to higher vacancy rates and softer average retail rents for the 2nd half of 2015, property consultancy firm Knight Frank (KF) reported.
The problem is further compounded by an increment in the supply of retail space in major malls over the next four years.
As major retailers continue to consolidate their operations in the challenging, current retail landscape, mall owners will turn to short-term leases to generate revenue while searching for long-term tenants.
An influx of new retail space is expected under the current retail climate. Be it from new major projects or a rise in larger vacant units subsequent to the closure of several department stores island-wide, the promise of a surge in the supply of new retail space in 2015 has put pressure on prime retail rents island-wide by roughly 1 to 2% this year, and average rents across Singapore may also fall by 3 to 5 per cent in 2015, KF said.
According to the report:
‘Approximately 3.7 million sq ft of net lettable retail space is expected to come onboard from 2015 to 2019, averaging about 0.7 million sq ft of new major retail space per year;
1.1 million sq ft of net lettable retail space will be completed in 2018, of which roughly 75%, or 0.8 million sq ft, is located in Outside Central Region of Singapore.’
2015 witnessed a wave of department store closures inducing larger vacant units in many malls:
Wisma Atria closed its Isetan store in 2015's second quarter after 30 years;
John Little closed its Marina Square branch with further plans to close its Tiong Bahru store this year;
Marks & Spencer also plans to close its Centrepoint store.
Metro will close its Compass Point outlet by 2nd quarter of 2016, after running for 12 years.
Anchor retailers such as department stores play an important role in a mall by not only serving as "magnets" to various sections of the mall but also acting as "a good test bed for brands looking to enter the market".
Department stores continue to remain relevant in the retail market. These serve as one of the key forms of anchor tenants, which help a mall provide a comprehensive trade mix, and serve as magnets to draw crowds to different parts of a mall.
Retail rents for prime areas across Singapore also rose in the 2nd Qrt to S$32.20 per sq ft - a 0.8% cent increase from the first quarter of the year. The report attributed the growth to continued firm demand from retailers for the best spaces of popular malls due to limited supply, with an added impact from retail trade re-positioning and renewals, and spaces developing through Asset Enhancement Initiatives (AEIs).
After undergoing AEIs, Marina Centre, City Hall and Bugis precinct saw prime retail rents rise 1.1% to S$33.00 per sq ft from Qrt. 1, while prime retail rents in the city fringe and suburban areas increased by 2.2% to S$23.50 per sq ft and 2.8% to S$33.10 per sq ft respectively from previous quarter.
Orchard Road (central) prime retail rents fell 1 per cent from the first quarter to S$47.40 per sq ft while Orchard Road (fringe) showed no change in rents in the 2nd quarter.
Singapore's retail scene also introduced a number of "new-to-market brands" in the first half of 2015 as landlords scurry to refresh their tenant mixes, the report added. Capitol Piazza featured a range of new luxury retailers and dining options, while Scotts Square, VivoCity, and Suntec City Mall also made changes to their tenant mix this year.
Source: Business Times