Incredible tourism buoys retail property market in Q2 2011

A record 1.1 million tourists visited Singapore in April, says Singapore Tourism Board.

According to Colliers International's retail property market report, coupled with the upbeat mood amongst consumers amid healthy economic and job prospects, this contributed to the higher retail spending, as reflected in the 7.4% YoY rise in April’s retail sales index, excluding motor vehicles.

Pending release of official figures, visitor arrivals and consumer spending were likely to have stayed elevated in May and June, boosted by the two-month-long Great Singapore Sale which started on 27 May, as well as Singapore’s hosting of several major events, including Singapore Maritime Week 2011, CommunicAsia 2011 and BroadcastAsia 2011.

This spirited retail scene continued to nourish retailers’ confidence and encouraged them to open new stores or source for expansion opportunities in 2Q 2011.

For instance, Japanese clothing chain Uniqlo strengthened its foothold in Singapore with the opening of a new 10,000 sq ft outlet at VivoCity in the Harbourfront locality in late April, and another 13,300 sq ft store at Causeway Point in Woodlands in May. This brought Uniqlo’s total store tally in Singapore to five as of 2Q 2011. The retailer plans to open another three outlets, with hopes of opening an outlet in the Jurong area, although it does not rule out the possibility of opening more stores in the Central Business District.

According to Colliers International’s research, prime retail rents in good quality malls on Orchard Road held steady at the past six quarters’ level of $38.50 per sq ft per month. Likewise, the average monthly gross rents for similar quality space in the Regional Centres remained unchanged at the previous quarter’s level of $33.60 per sq ft per month as of 2Q 2011.

As such, in spite of the substantial retail space supply already in the pipeline, the resilience in retail rents, coupled with developers’ optimism about the mid-term prospects of the retail property market, saw them proposing retail components in their development concepts for two mixed-use Government land sites in Paya Lebar and Jurong East that were successfully awarded in 2Q 2011.

A consortium comprising Low Keng Huat, Guthrie Properties and Sun Venture won a commercial land parcel in Paya Lebar Central in a state land tender in April, of which at least 80% of the total gross floor area (GFA) of 671,450 sq ft must be for office use. The developers had indicated that the remaining 20% or about 134,290 sq ft would be retail space.

Over in the West, CapitaMalls Asia, CapitaMall Trust and CapitaLand were jointly awarded a Government land site next to the Jurong East Mass Rapid Transit Station in May. The consortium plans to develop a 25-storey retail and office project on the site, with 60% of the maximum permission GFA of 957,780 sq ft or 574,668 sq ft for retail use. The new mall, expected to open in 4Q 2013, is likely to take up five levels and would be positioned as a family and lifestyle mall with mini anchor tenants.

Together with these two developments, there are a total estimated 4.7 million sq ft of retail space completing from 2011 (full year) to 2015. This translates into an annual supply of 937,110 sq ft of retail space, although this is substantially lower than supply levels seen in 2009 and 2010, which averaged about 2.4 million sq ft per year.

And with only about 12.0% of the total estimated upcoming supply expected to be located within the Orchard Road submarket, there is potential for rents of prime retail space on Singapore’s premier shopping district to continue to hold steady or even register some upside, as demand for space is expected to be supported by the anticipated tourism growth and positive economic prospects.

On the other hand, the substantial supply of space entering the Regional Centres/suburban areas, coupled with tenants’ resistance towards further rental upside in light that rents are not far from Orchard Road’s levels, is expected to put a lid on rental growth. As such, this could keep rents in the Regional Centres relatively stable at current levels for the rest of the year. 

Photo credit: mroach