Concerns over new supply, rising costs even though occupancy is high
DTZ Debenham Tie Leung has raised some concerns about the market for retail space turning competitive as more developments are completed in the next few years.
It said that while occupancy in the retail market remained high at 90 per cent, there were some concerns about the effect of rising costs and the surge in new retail developments since 2006, as more than three million square feet of retail space, about 7 per cent of existing stock, was completed in the past two years.
According to its report, a further 15 per cent of new space can be expected to be added to the existing stock of 28.5 million sq ft of retail space by 2010.
As such, DTZ expects the retail market to be increasingly competitive, with substantial retail space that will be completed in the next three years.
These include projects like ION Orchard (663,000 sq ft) and Orchard Central (270,000 sq ft) which will be completed in 2008 and will house a significant number of retailers new to the Singapore market.
The rate of increase for first-storey monthly fixed gross rents in the Orchard/Scotts Road area slowed marginally in 2007, registering a 6.6 per cent increase year-on-year (YOY) compared with a 7.4 per cent increase in 2006 YOY.
For Other City Areas (OCA), first-storey monthly fixed gross rents rose by 5.9 per cent in 2007 YOY, up from 5.4 per cent for 2006.
First-storey monthly fixed gross rents in Suburban Areas (SA), rose 5.7 per cent in 2007 YOY, up from 4 per cent for the same period in 2006.
DTZ executive director Ong Choon Fah said that she expected new malls to continue to set new benchmark rents this year, but added: ‘Run-of-the mill malls could suffer.’
Noting that there has been ‘more resistance from retailers’ in terms of rental increases, Mrs Ong also highlighted that while there was limited growth in average monthly fixed gross rents, there was greater increase in turnover rents, or the component of the rent determined by the retailer’s revenue.
And active management of malls, as demonstrated by some of the Reit-owned malls, remains a key factor in staying competitive.
Saying that ‘not all malls work’, Mrs Ong added that mall managers will have to work to ‘tease out shoppers’ dollars’.
On some of these new strategies, DTZ associate director for retail Anna Lee added: ‘New niche retail space continues to energise the retail market as mall managers actively raise additional retail space through refurbishments, asset enhancement and redevelopment.’
Competition is also coming from abroad.
Mrs Ong said that there is anecdotal evidence that many Singaporeans have been travelling to Kuala Lumpur over the current festive season to shop. She also noted that as development costs are lower there, mall owners can afford larger malls that offer more innovative retail concepts. ‘It is not uncommon for new malls to be one million sq ft in size and there are even two million sq ft malls.’
DTZ also noted that young shoppers especially are valuing individuality more than before and prefer to shop through less popular channels, such as virtual retail, for exotic brands.
So besides having to grapple with significant supply, the retail market will also have to respond to structural changes in retailing and emerging consumer preferences, DTZ said.
Source: Business Times 15 Jan 08