Updated from : The Business Times, 17 July 2020
VACANCIES from the second quarter of 2020 are expected to put further downward pressure on retail rents in Singapore as more businesses shutter for good, said Cushman & Wakefield (C&W) in a report on Thursday.
Many activity-based tenants such as those in food and beverage (F&B) and health and wellness will not be able to operate at full capacity with safe-distancing measures remaining in place, despite most retail businesses resuming operations since June 19 after Singapore’s “circuit-breaker” period.
As such, vacancies in non-prime locations are expected to rise in the second half of the year, as activity-based tenants are usually located in non-prime spaces within malls, given their larger size requirements.
The entire retail market may see steeper falls in rent in H2 2020, due to higher expected vacancies, lower footfalls, safe-distancing measures and economic uncertainties from the Covid-19 pandemic, said Christine Li, C&W head of research for Singapore and South-east Asia.
“Currently, many landlords are still maintaining close to pre-Covid-19 asking rents, but as vacancies rise, landlords are expected to become more flexible,” she said.
That being said, rents will be less affected for popular prime spaces in sought-after suburban malls, as they are able to maintain high occupancy levels due to their strong tenant profiles, according to Ms Li.
Prime retail rents fell across the board in the second quarter of 2020, weighed down by an average vacancy rate of 8 per cent, according to C&W data.
Orchard Road prime rents fell 1.5 per cent to S$34.73 per square foot (psf) per month, compared with the first quarter, with an overall vacancy rate of 8.1 per cent.
In other city areas, rents declined 3.5 per cent quarter on quarter to S$20.88 psf per month on a 9.5 per cent vacancy rate.
Suburban prime rents edged down by 0.9 per cent to S$31.56 psf per month for Q2, with an overall vacancy rate of 7.3 per cent.
For the whole of 2020, C&W expects prime rents in Orchard and other city areas to fall by about 10 per cent each, and suburban prime rents to decrease by 5 per cent.
Its report noted that there could be an overall fall in new demand for retail spaces as some F&B tenants explore delivery options such as cloud kitchens or central kitchens, in view of the current safe-distancing measures.
Singapore saw a flurry of retail closures in Q2, with the shutting down of indoor family attraction Kidzania Singapore and of German-themed Starker Bistro, which closed all seven of its outlets.
Fashion brand Esprit reportedly shut 12 outlets islandwide, while department store operator Isetan will not be renewing its lease at Westgate. Another department store operator, Robinsons, will close its Jem outlet in August, with some of its space to be replaced by Ikea.
Mark Lampard, C&W executive director for regional tenant representation, said there is “some opportunity” for retailers to pursue prime retail spaces during this time as vacancies rise. For more stability, retailers could explore suburban prime options.
“What is very clear is that retailers have the opportunity to sharpen their e-commerce channels, including virtual live sales, given that it is a major mode of transacting business now,” he added.
In the first quarter of 2020, rents of retail spaces eased 2.3 per cent over the previous three months, according to data released by the Urban Redevelopment Authority on April 24.