Published March 20, 2012

[B][SIZE="5"]Average retail rents seen remaining flat over the year[/SIZE][/B]

[B]'Sticky inertia' likely as retailers try to enhance efficiency, says Knight Frank[/B]


(SINGAPORE) Average retail rents are projected to remain flat over the year, with any increases likely to be between one and two per cent, as retailers grapple with productivity issues and come to terms with business-cost concerns.

According to Knight Frank Research, the industry is likely to see a 'sticky inertia' as retailers try to enhance their retail management efficiency, following the announcement that the ratio of foreigners that companies in the services sector can employ will be lowered from 50 per cent to 45 per cent, from July.

Coupled with low nationwide unemployment rate for Singaporeans, the stricter foreign worker dependency policies in July is expected to raise manpower costs, resulting in rising business costs which are likely to drag on rental rates over this year and the next, noted Knight Frank.

In Q1 2012, average prime rents on the central Orchard Road belt stayed at about $41.60 psf, while Orchard Road fringe and Marina Centre, City Hall and Bugis rentals remained stable at $24.10 psf and $29.40 psf, respectively. Rentals of prime retail space located at the city fringe and suburban regions also saw marginal changes at some $22.50 psf and $32.10 psf respectively. Average island-wide prime retail rents for the quarter remained flat at around $29.90 psf.

While prime retail spaces, particularly those on the central Orchard Road belt, continue to be highly sought-after due to limited availability, retailers are increasingly looking at well-positioned fringe or suburban malls as viable alternatives.

'Big fashion and F&B brand names may have previously considered malls located in the city fringe and suburban areas as an unattractive proposition. However, new non-Orchard Road malls, particularly those situated in residential or new growth areas where residents are of high-income profile, are increasingly adopting an up-market positioning, which may inadvertently translate into higher spending capacity,' noted Png Poh Soon, head of consultancy and research at Knight Frank.

That being said, the rental outlook for prime retail space on the central Orchard Road belt remains positively resilient, as big brands continue to source for available space here.

'Given the scarcity and strong demand for prime spaces on the shopping belt, landlords are not expected to lower rents for such spaces. We expect prime retail rents in Orchard Road to increase at 2 to 3 per cent over the course of the year,' added Mr Png.

Moving forward, the trend of well-positioned fringe or suburban malls is likely to continue, given the large supply in the pipeline.

Of the 2.7 million sq ft of upcoming net lettable retail area islandwide in the next two years, approximately 55 per cent is located in suburban areas, and 21 per cent in fringe areas.

Older malls are also reviewing their positions, with an increasing number embarking on asset-enhancement initiatives to stay relevant.