Retail property landlords may relent on rents in favour of higher occupancy

Retail property landlords may be relenting on rents in favour of higher occupancy, says a report by CBRE which analysed the URA Q2 2019 statistics.

The report noted that in Q2 2019, URA’s retail property rental index (Central Region) saw its second consecutive quarter of decline.

“Compared to -0.2% q-o-q in the previous quarter, the pace of decline in Q2 became -1.5% q-o-q, dragged down mainly by the Central Area which fell by 1.8% q-o-q, its worst performance in 9 quarters. This is likely due to the poorer performance of secondary floors and buildings as they have been the hardest hit by the slowing retail market.

The report said that there are signs that retail property landlords may be relenting on rents in favour of higher occupancy – given that the island-wide vacancy rate dropped to 7.7% at the end of the second quarter from 8.7% last quarter.

“Going forward, the retail market could be under further pressure as economic uncertainty takes a toll on consumer sentiment and retail spending. The limited upcoming supply remains the saving grace of the market and will help to cushion the pace of rental decline. Rental performance for prime retail space will continue to stay resilient, as demand for such space remains relatively healthy.”

Colliers International commenting on the same set of data said that the ease of future supply could cause retail property landlords to relook their strategy to support occupancies.

The Colliers report noted that the URA’s retail real estate indices for Q2 2019 were generally mixed, with rental declines across all areas amid vacancy improvement and higher capital values. It added that the URA’s Retail Rental Index for the Central Region was down by 1.5% QOQ, compared to the 0.2% decline seen in Q1 2019. Cumulatively, rents have declined 18.5% since the last peak in Q4 2014. We believe consumer sentiment is likely to be tempered as reflected by the weak Q2 2019 GDP growth.

“Prices of retail properties in the Central Region improved marginally to 0.4% QOQ, versus a 1.9% QOQ decline in the preceding quarter – likely driven by higher investor interest and transaction volumes. Majority of the deals were malls in Central Region, including Marina Square Shopping Mall, Chinatown Point Mall, and Liang Court mall.

Meanwhile, island-wide retail vacancy improved by 1ppt QOQ to 7.7% in the quarter, despite higher retail space granted Temporary Occupation Permit (TOP). On a year-on-year (YOY) basis, vacancy increased by 0.4 ppt. During the quarter, 60,600 sq m of retail space was completed, with the most significant supply coming from Funan’s 43,500 sq m of Gross Floor Area (GFA). Another notable completion came from the 15,500 sq m GFA additions/alterations to the existing Raffles Hotel and shopping arcade.”

In its outlook of the retail sector, Colliers noted that consumer spending remains cautious.

“Based on figures released by the Singapore Department of Statistics, retail sales (excluding motor vehicle sales) fell for the 4th straight month in May, declining by 1.0% YOY. While we see trends of rents stabilising in the last few quarters, in part a result of the ongoing consolidation of the retail industry for the past few years, increasing risks of an economic technical recession could impact consumer sentiment and delay any recovery.

Q2 2019 also saw several retail trends gaining pace including: “clicks-to-bricks” with Love Bonito opening its third and flagship store at Funan; “bricks-to-clicks” as Crabtree & Evelyn shut all its physical stores in Singapore and move operations online with a relaunched website and new product lines; as well as “experiential retail” as demonstrated by the opening of Funan.

With Jewel and Funan starting operations in H1 2019, future supply should ease significantly. Colliers Research estimates H2 2019-2023 average annual new supply at 380,000 sq ft versus 1.04 million sq ft over the last 10 years. This should help support occupancies in the retail market going forward.

In 2019, we expect ground floor retail rents in prime shopping centres along Orchard Road could decline marginally with weak consumer spending; while prime floor rents for Regional Centres (suburban) should stabilize given a higher proportion of non-discretionary income spending. For the latter, those in suburban locations with significant catchment areas and MRT connections, should continue to outperform the less strategically-located suburban malls.”

Mr Paul Ho, chief mortgage officer of iCompareloan, commenting on the trend in the retail property segment said, “considering the fact that consumers are cautious and the less than upbeat sentiment caused by the trade war, as well as the threat of a technical recession, it makes good sense for retail property landlords to rethink their pricing strategy.”

“Such pricing re strategy by retail property landlords will ensure that occupancy does not experience a freefall,” he added.

How to Secure a Commercial Loan Quickly

Are you planning to purchase a similar prime commercial redevelopment site but unsure of funding? Don’t worry because iCompareLoan mortgage brokers can set you up on a path that can get you a commercial loan in a quick and seamless manner.

Alternatively you can read more about the Best Commercial Loans in Singapore before deciding on your purchase.  Our brokers have close links with the best lenders in town and can help you compare Singapore commercial loans and settle for a package that best suits your commercial purchase needs. Our services are also very personalised and tailored to the unique needs of the buyers.

Whether you are looking for a new commercial loan or to refinance and existing one, our brokers can help you get everything right from calculating mortgage repayments, comparing interest rates, all through to securing the final loan. And the good thing is that all our services are free of charge. So it’s all worth it to secure a loan through us for your next purchase.

If you need advice on a new commercial loan  or Personal Finance advice.

If you want to speak to our trusted Panel of Property agents.

If you need refinancing advice.