Retail space rental rates are expected to increase in 2024
Rents for Singapore retail landlords rose in 2023, up from the lows that they faced before. This was due to tourists returning and domestic spending gaining.
Market watchers believe that, while inflationary pressures and an increase in Goods and Services Tax might affect the short-term performance of retail sales and rents, they are unlikely to dampen them.
Rents for retail in the prime market will rise by between 1.5 to 4.1 percent over the course of the year 2023. The high growth of Orchard Road and Downtown sub-markets is a major reason behind this.
Rents for retail space are rising due to the increased demand for shopping malls of Tier 1, such as Ion Orchard and Nex, as well as an increase in inflation.
In light of the growth in tourism and revenge sales the sales of tenants in Tier-1 malls are now more than they were prior to Covid. Rents are rising and property prices are rising.
The retail sales increased for eight consecutive months from February 2023 until September 2023, before dropping in the month of October. November’s retail sales were valued at S$4.1 billion, according to Department of Statistics.
In 2023, food and beverage will continue to be the primary driver for new mall openings.This sector will account for 48 percent of all new openings. Fashion, beauty and health, along with lifestyle were among the two most well-liked mall openings.
Singapore’s foreign visitors arrivals in November decreased for the fourth consecutive month down to 1.1m but they were still higher than 816,340 visitors in November 2022. Before the pandemic, 1.5 million tourists visited Singapore in November 2019.
Analysts expect that the momentum of tourist spending will continue to grow, causing Orchard Road rentals to rise. However, downside risks still exist.
Tourism is predicted to completely rebound by 2024. High inflation and rising oil costs may increase costs for transport and accommodation for tourists.
In light of the current macroeconomic environment travellers are likely to be more cautious about their travel plans as well as their spending.
The strength of the Singapore Dollar is driving Singaporeans to travel overseas, but the ability to purchase for tourists is limited.
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Retail sales have been impacted by the rise in GST and inflation.
Analysts believe that plans to revive Orchard Road and make it a lifestyle destination in the future will boost prices and rents.
Orchard Road property is attracting increased interest. Tanglin Shopping Centre was sold in 2022 for S$868 million, and Far East Shopping Centre went for S$908 million. Scotts Square, a shopping center located in Singapore’s Scotts Square, is for sale for S$450 million.
The renovation of structures along Orchard Road could bring about new retail areas that will attract tenants, and command rents that are higher. These areas could be transformed into areas more well-known and lively, with an increase in pedestrian flow.
The strata-malls often have a mishmash due to the owners operating their own retail and F&B concepts, as and the owners who lease their properties in accordance with rental rates, without enough attention to the types of concepts or synergies between trade.
The malls going through revamping will be able to provide customers with a more enjoyable shopping experience their customers, and attract younger customers.
Rents are predicted to increase by 3 to 5 percent each year on Orchard Road.
Rents in suburbs are expected to remain stable because of the rise in the rise in inflation and travel abroad reduce consumption.
According to URA data, an estimated 570,000 sq ft, net lettable (NLA), of retail space is anticipated to be added by 2024.
The figure is less than the 1.2m sqft NLA that was completed in the year of 2019. This is also greater than the 443,473 sq ft NLA retail space which was completed by 2022, and similar to 599,549 sq ft NLA in 2021.
It is not likely that there will be a retail shortage by 2024. This won’t have an effect on retail rents this year.
The estimated completion date of Pasir Ris Mall in 2024 is approximately 280,000 square feet. Labrador Tower will also be getting a smaller retail component estimated to be around 30,000 sq ft NLA.
The retail inventory that is expected to be added in 2024 is less than the annual average of 0.62 million sq ft in the past five years which is expected to support rents in the year 2019.
She said she expects the capital value to increase by 2024.
URA statistics show that retail prices in the Central Region have recovered by 0.9 percent since thje Q1 low. Prices were lower by 26 percent in Q3 than they were at their highest since Q4 2014.
