Prime retail rents rise 0.5% to $40.20 psf in Q311

Demand for first-storey prime space remains strong due to limited supply as the next retail project will only be completed in Q4 2012.

Retail spending remained strong in July 2011, supported by low unemployment and strong tourist arrivals. According to the Department of Statistics, retail sales excluding motor vehicles increased 1.3% month-on-month and 10.7% year-on-year in July 2011.

Tourist arrivals also rose 16.2% YOY to 1.3 million visitors in July 2011.

According to a DTZ report, new retail completions in Q3 2011 include Rochester Mall, Scotts Square, Changi City Point and 112 Katong which added a total net lettable area of about 510,000 sq ft to the stock. 32% of the total potential supply for 2011 will come on-stream in Q4 2011. Major projects that will be completed by the end of the year are Greenwich V, Alexandra Retail Centre at PSA Building and Junction 10.

Demand for first-storey prime space with good frontage remains strong due to limited potential supply. After the completion of Scotts Square in Q3 2011 which is the only new development in Orchard/Scotts Road for the year, the next new retail project along the prime retail belt is additions and alterations to Atrium@Orchard which will only be completed in Q4 2012.

As a result, the average gross fixed rent of prime first storey-space in the Orchard/Scotts Road area increased by 0.5% quarter-on-quarter to $40.20 per sq ft per month in Q3 2011, according to estimates by DTZ Research.

“With international retailers moving away from their home base to expand operations in Asia, the Singapore retail landscape has become more competitive. Besides new brands such as H&M and Aeropostale, brands such as Mulberry and Smiggle which have already set up base in Singapore also plan to open more stores here,” observed Ms Anna Lee, Director (Retail).

The average gross fixed rent of prime first-storey space in other city areas remained unchanged at $24.05 per sq ft per month in Q3 2011 due to uneven performance. The region particularly in the Marina Centre area continues to face competition from Orchard/Scotts Road area which has seen a number of new retailers. In addition, some of the office crowd in the Marina Centre area has relocated to the new office buildings in Marina Bay, giving rise to lower shopper traffic before the vacated office space is filled up.

The average gross fixed rent of prime first-storey space in suburban areas remained unchanged at $33.70 per sq ft per month in Q3 2011. Demand for space in malls particularly in HDB town centres serving a large catchment area remains strong. Changi City Point and Jcube saw pre-commitment rates of more than 90% and 80% respectively. However, the upside in rents remains limited due to the abundant supply completing in the next few years.

From Q4 2011 to 2015, 65% of the potential supply including those from awarded government land sale sites without planning approval will come from the suburban areas such as Jurong, Bedok and one-north.

“As the economic outlook has deteriorated, some retailers have already become more cautious in taking up new space. Retail rents are expected to move along sideways, barring a drastic turn in the economic situation. While facing headwinds from the oncoming potential supply, retail rents will be supported by demand from international retailers and asset enhancement initiatives of malls to increase their appeal to shoppers,” observed Ms Chua Chor Hoon, Head of SEA Research.