[SINGAPORE] Singapore prides itself as a food haven. Residents and visitors love wining and dining at the wide range of food and beverage (F&B) outlets here.
However, the local F&B scene is reeling from a spate of closures of F&B outlets. Might Singapore’s status as a top food destination be undermined by the high failure rate in the this sector?
Last year, the number of F&B business closures in Singapore hit a 20-year high at 3,047. And average monthly closures in the first quarter this year are above 300.
My take is that landlords are not entirely to blame for the high rate of business closures.
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Subdued growth in retail rentals
One, growth in retail rents has been lacklustre over recent years. Based on data from the Urban Redevelopment Authority’s Realis, the private sector rental index for retail space fell 22.1 per cent in the central region and 24 per cent in the fringe area between pre-Covid pandemic in Q4 2019 and Q1 2025.
Certainly, some major retail landlords have been upping rents over time and continue doing so. For Q1, CapitaLand Integrated Commercial Trust (CICT) had positive rent reversion – which measures the average incoming rents versus the average outgoing rents – of 11.2 per cent for downtown retail spaces and 9.5 per cent for suburban retail spaces.
In perspective, if rent increases by 10 per cent when a lease expires after three years, this represents growth at a compound annual growth rate of 3.2 per cent, which may be broadly in line with the inflation rate.
Two, rental is not the only large cost component for an F&B business. Other major recurring costs include manpower and supplies. The initial investment in buying equipment and fitting out premises can also be substantial.
For a typical F&B outlet here, the amount of revenue eaten up by rent might be in the low double-digits in percentage terms.
Leading Singapore suburban mall owner Frasers Centrepoint Trust (FCT) reported retail portfolio average occupancy cost of 16 per cent for the financial year ended Sep 30, 2024, down slightly from that in pre-Covid pandemic in the financial year ended Sep 30, 2019. Occupancy cost refers to the ratio of gross rental including turnover rent paid by a tenant to the tenant’s sales turnover excluding goods and services tax.
Long-term greedy landlords
Three, leading retail landlords including CICT and FCT are likely to be long-term greedy. A long-term focused landlord will prioritise achieving high occupancy levels and having retail tenants that succeed.
As at end-March, committed occupancy at CICT’s retail properties here, excluding the areas in IMM Building that are undergoing asset enhancement, was 98.8 per cent. And the tenant retention rate for CICT’s retail spaces in Singapore, based on net lettable area of renewed versus expiring leases for Q1, was 79.2 per cent.
A mall owner will aim to charge an F&B player high but hopefully sustainable rent. After all, the landlord would seek to avoid having high rental arrears from failing tenants or many tenants abruptly shutting operations. Indeed, a mall with many outlets shut is unappealing to shoppers.
On the other hand, a mall with all its shops open for operations can draw higher shopper traffic. And tenants will flock to be in malls with high visitorship.
Four, some F&B operators are mini-anchors for malls and thus well-placed to secure choice spots on favourable terms.
Mall owners who value having the right tenant mix might pursue certain F&B brands or concepts to help position their property and draw visitors. Equally, an owner of a row of shophouses may be keen to lure the right F&B operator who can bring visitor traffic to the said properties.
In short, sought-after F&B operators are in a strong bargaining position to secure choice spots.
Five, intense competition among F&B players can result in players fighting hard to snare certain spots by offering high rents.
For example, many F&B operators may seek to be in the most prime area of a popular mall or to have presence in an established dining enclave that has buzz. Thus, when choice F&B spaces become available, landlords are in the sweet spot of choosing among strong players who dangle juicy rents.
Furthermore, new entrants to the local F&B scene, including Chinese brands, may bid aggressively for target spots in the hope of quickly making an impact with patrons who are spoilt for choice.
Six, F&B operators that wish to minimise the risk of relocation from specific locations can consider measures such as signing longer leases than, say, a three-year lease or partnering a real estate player in said F&B outlets.
A shophouse owner might be keen to take an equity interest in the restaurant or bar that occupies the property. Property giant Far East Organization invests in a varied portfolio of F&B concepts.
The sector will always be tough for operators – in particular young, new entrepreneurs. Success is built on getting many things right such as concept, taste, presentation, ambience, logistics, manpower, supply chain, branding, marketing, pricing, location and so forth.
Drawing and retaining customers is challenging as patrons have ample choice and are often mindful of getting value for their spending. Also, F&B businesses need to constantly adapt to changing tastes and business conditions.
Still, the high spending power of residents and visitors here will draw new players to enter a ferociously competitive F&B scene.
A high rate of F&B business closures may be inevitable – just don’t blame rent for the sector’s churn. Ultimately, as buzzing F&B outlets are a powerful driver of successful physical retail spaces, many landlords are as vested as F&B players in building a vibrant wining and dining scene in Singapore.
