THE islandwide retail vacancy rate has continued its downward trend from 6.6 per cent in the second quarter of this year to 6.5 per cent in the third quarter, which is the lowest since 2014, said Savills Singapore on Wednesday (Nov 6).
The net take-up rate for retail spaces was evenly spread across the central region, with the exception of the Downtown Core Planning Area where occupancy remained unchanged.
For the prime Orchard Road shopping belt, the vacancy rate was 7 per cent in Q3, slightly higher than the first quarter’s 6.8 per cent and marginally lower than Q2’s 7.1 per cent. The property consultancy noted this was near the pre-Covid five-year average of 6.7 per cent, for the years 2015 to 2019.
It added: “This shows improved overall market sentiment in the Orchard Road retail scene, albeit amid generally muted retail sales.”
It also said that the vacancy rate for retail properties in the suburban area remained stable at 4.6 per cent, on the back of full pre-commitment for the newly revamped spaces at the Tampines 1 mall during Q3.
With healthy demand for prime retail spaces, rental rates grew in Q3. Based on Savills’ data, retail rents rose at a slower pace during the quarter, with the average monthly rent in the Orchard area up by 0.5 per cent at S$23.10 per square foot (psf).
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Similarly, the average retail rent in the suburban area fell marginally by 0.1 per cent quarter on quarter to S$14.70 psf in Q3.
Meanwhile, the Urban Redevelopment Authority’s (URA) retail rental index inched up by 0.3 per cent for the central region in Q3, after remaining unchanged in Q2. Prices of retail space in the central region rose 1.7 per cent in the latest quarter, in contrast with the 1.2 per cent drop in the previous quarter, URA’s data showed.
Savills noted that while the tourism sector is recovering, tourist arrivals for the first three quarters of 2024 are still 12 per cent lower than in the same period in 2019. Tourist spending has also remained weaker than pre-Covid levels.
In addition, the consultancy projected domestic spending to remain muted due to inflationary pressure and economic uncertainties.
Alan Cheong, executive director for research and consultancy at Savills Singapore, said: ”While intense competition from new market entrants has helped to lift prime retail rents, we project a moderated growth for overall average rents for the rest of the year.
“Rents should have started falling a quarter or two ago, given margin compressions that retailers and F&B (food and beverage) operators face. But the entry of foreign F&B operators has held up rents, thus aggravating the situation of the existing operators.”
However, he pointed out that this trend may not persist because “falling or negative margins may pervade across the retail and F&B landscape, causing more to exit than foreign players entering”.
He added: “So, despite the tight supply pipeline in the next three years, overall rental growth is expected to generally head sideways in the next few quarters.”
Around 219,000 square feet (sq ft) of net lettable area (NLA) of retail space is expected to come online in the fourth quarter, based on Savills’ estimates, adding up to a total of more than 800,000 sq ft of retail NLA for 2024.
The annual new completions for the next three years are projected to remain below the total completions in 2024, averaging 527,000 sq ft of NLA per year from 2025 to 2027, said Savills.
In 2028, there will be 1.3 million sq ft of retail NLA coming to the market, which is on a par with the five-year annual average from 2014 to 2018. Notably, most of the major projects involve redevelopment works, suggesting that developers are also working to keep their buildings relevant, added the consultancy.
For the rest of the year, it expects rents in the prime Orchard Road malls to rise 3 to 4 per cent year on year, with the rents at suburban malls remaining unchanged.
