Retail rents in the central area fell by 1.1% q-o-q, while islandwide vacancy rates fell by 0.7 percentage points

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Rents for retail in central regions sank in 4Q2022, extending the downward trend that has been charted since 1Q2020. According to URA data , which was released on January 27 The retail rents in Singapore’s central region dropped in the central region by 1.1% q-o-q last quarter and grew from the 0.4% q-o-q fall recorded in the 3Q2022. “The URA retail rental index is now down for three years , or 12 consecutive quarters, resulting in an 22.4% decrease from 4Q2019,” observes Leonard Tay who is the head of research for Knight Frank Singapore.

The continuing decline in rents could be attributed to ongoing sector headwinds , such as a shortage of manpower, increasing costs, and a more cautious consumer attitude, according to Lam Chern Woon, head of research and consulting at Edmund Tie. “Landlords have not had the ability to increase rents because the operating environment is very difficult and difficult for retail businesses,” Woon explains.

The prices of retail properties have also been falling with a decrease by 2.1% q-o-q in 4Q2022. Retail property prices decreased in 2022 by 7.8% in 2022, which Lam claims is the largest decline in the full year since 2017.

However, despite the continuing decline in rents and the continued decline in rents, Knight Frank’s Tay notes that the retail industry is “in a better position” when compared to the same time a year earlier. In 2022 as a whole rents for retail for the Central Region declined by 2.4% per year, which is a slight improvement in comparison to that 6.8% fall in 2021. “2022 was a significant year for the release of restrictions on pandemics, so that retailers as well as F&B operators could now begin to prepare for operations taking pre-pandemic normalcy into the back of their minds,” he explains.

Tricia Song, the head of research Southeast Asia at CBRE, is in agreement in stating that retail indicators remained upbeat in the 4Q2022 quarter on the back of a rebound in tourism spending as well as the increased frontloading of major-ticket purchases in anticipation of the GST increase which came into effective on January 1.

In parallel, the private retail market witnessed the most leasing activity in the 4Q2022 period as retailers tried to capitalize on the rise in sales over the Christmas period, according to Song. Net absorption across the island was 710,417 square feet in 4Q2022, which was more than twice the 322,917 sq ft in the prior quarter. Private retail vacancy rates across the island dropped between 7.8% in 3Q2022 to 7.1% in 4Q2022. This represents an increase on occupancy by 0.7 per cent.

In the entire year, retail space for private use net absorption was approximately 990,279 sq feet less than 1.08 million sq ft that was expected in 2021.

In the future, Edmund Tie’s Lam expects the growth in tourism spending to boost retail sales, resulting in an improvement, particularly in the prime shopping areas. “However we’re cautious that the looming headwinds such as high inflation and uncertainty, such as the possible appearance of new Covid versions along with any tightening of travel border and local laws will continue to impact the sentiment of consumers and retail which could limit consumer spending and rental growth” he warns.

If there is no change in the economic situation, Lam projects prime first-storey rents in Orchard to grow by an average by seven% or 9% this year. Meanwhile, prime malls are expected to experience a rental increase from 3.0% or 6%.

Knight Frank’s Tay believes rental expansion of prime retail space will be accelerated in 2023, aided by the continued momentum of recovery after the elimination of restrictions related to pandemics. “So that there are no limitations on the number of people who can be gathered and requirements for quarantine for cross-border visitors, prime rents of retail space will rise between 3% to 5% throughout 2023, with Orchard Road, the premier shopping area Orchard Road leading the recovery,” he predicts.