Retail space is getting expensive in Singapore. Rents here continued to climb in the first half of 2007 on the back of rising demand for prime retail

Retail space is getting expensive in Singapore. Rents here continued to climb in the first half of 2007 on the back of rising demand for prime retail space as international brands continued expanding and consumer sentiment remained robust.

Islandwide, rents at Grade A malls have moved up by between 5-7 per cent in the first half of this year and could increase by another 5-6 per cent by end-2007, analysts said.

And in the prime Orchard Road shopping belt, current rents appear to be fast approaching levels seen in 1996, right before the Asian financial crisis.

New research from property firm CB Richard Ellis (CBRE) shows that rents of units on levels with the highest traffic along Orchard Road registered an average of $34.40 per square foot per month (psfpm) - close to the average of $35.10 psfpm seen in 1996.

Present rental levels are now 47 per cent higher than the average $23.40 psfpm recorded at the lowest point in 1998, CBRE said. ‘For the whole of 2007, we expect prime Orchard Road rents to grow between 4 and 7 per cent, given the lack of new supply in Orchard Road for the rest of 2007, as well as the healthy tourist numbers from Indonesia, Australia and the emerging markets of China and India, where people are experiencing rising affluence,’ said Mavis Seow, CBRE’s executive director for retail services.

Efforts to rejuvenate Orchard Road with a lot more vibrancy are beginning to pay off, she said. Landlords are actively seeking out fresh foreign brands while established brands have either expanded their range of merchandise or have revamped their boutiques. All this indicates a positive outlook on the part of both retailers and landlords, Ms Seow said.

But as a result of the upbeat atmosphere, setting up shop here has become more expensive for incoming retailers as well as for established ones, observers say. There are also concerns that retailers and F&B operators will pass on rent hikes to consumers, making shopping in Singapore an increasingly expensive option.

Market watchers however point out that Singapore’s retail rents and the rate of growth lag those in Hong Kong. ‘The rents for Hong Kong are still the highest with Singapore following behind,’ said Chua Yang Liang, head of Singapore research at Jones Lang LaSalle, comparing Singapore, Hong Kong, Bangkok and Kuala Lumpur.

In the first quarter of 2007, prime rents in Hong Kong reported a growth of 5.6 per cent quarter-on-quarter due to expansion of existing retailers and new entries, Dr Chua said. In comparison, Singapore’s prime location reported a growth of just around one per cent, he said. Even if rents continue to rise, many other factors determine if retailers find Singapore an attractive location for setting up.

‘Higher rentals is only one side of the story,’ said Nicholas Mak, Knight Frank’s head of consultancy and research.

He added: ‘Higher rentals will not squeeze margins if revenue increases by a proportionate or higher amount. In the last three years, retail sales excluding motor vehicles have been increasing at an annual compounded rate of about 7 per cent per year while average retail rentals grew at 3 per cent per year.’

Dr Chua said: ‘International retailers are more concerned with their exposure and market share rather than occupancy costs. Rental is but a minor parameter in their location decision equation.’

Source: The Business Times, 29 June 2007