IMPROVED tenant mixes, curated offerings for shoppers, well-maintained malls and fewer vacant units could be in store for the Orchard Road shopping belt and retailers in the Central Business District (CBD), as a result of a new restriction on strata properties.
Real estate consultants welcomed the Urban Redevelopment Authority’s (URA) latest policy move prohibiting commercial properties in key parts of the Central Area to be strata subdivided into individual units, as it is expected to largely benefit the retail scene.
The rule applies to locations in the city centre such as Orchard Road, Tanglin Road, Shenton Way, and Robinson Road, as well as developments near key landmarks of national significance.
For existing developments that are strata subdivided, the restriction will apply to future redevelopment. For all other developments, it takes effect immediately.
According to ERA Realty head of research and consultancy Nicholas Mak, existing major buildings located in the applicable areas include Far East Plaza, Tanglin Shopping Centre and Orchard Towers in Orchard, and Downtown Core’s Peninsula Plaza and The Adelphi.
Sulian Tan-Wijaya, executive director, retail and lifestyle at Savills Singapore, lauded the move as “very positive news” for the sector.
“Strata-owned retail developments, especially the newer ones, have unfriendly layouts and configurations because some developers try to maximise sale prices by creating smaller units that fetch higher per-square-foot prices,” she noted.
Besides, in buildings with numerous small units, only the ones with greater visibility or nearer to the entrances will find it easier to secure tenants. Buyers who end up with poorly located units thus have trouble renting their shops out, she told The Business Times.
Another drawback of strata-owned retail properties is that they often have “terrible trade and tenant mixes”, as strata owners are free to lease to anyone willing to pay the highest rent, she said.
Edmund Tie head of research and consulting Lam Chern Woon described the latest policy change as “a directed move” towards improving the tenant diversity of malls.
“It is generally true that malls with single ownership are able to exercise effective control on the mall’s positioning and curation of its tenant mix,” he said.
But he pointed out that leasing demand and the effective rents that mall spaces can command are not a direct function of the monopoly power of a single landlord.
Rather, they are a function of the superior retail concept and marketing that a single owner can possibly achieve, which will result in higher, sustained footfall and spending from the desired shopper demographic.
“Single ownership is not a silver bullet in itself for retail success,” Lam added.
He reckons demand and occupancy may keep steady or even improve amid the limited supply of existing strata malls. That, coupled with the impending return of tourists to Singapore’s shores, implies there may still be a sustainable path for strata retail in the Central Area, he told BT.
Lee Siew Ling, senior director of retail at JLL Singapore, said that having a single ownership will enable the landlord to curate the tenant mix based on demographics, in contrast to individual strata-titled owners, who often focus on the immediate rental yield.
“However, it will be important that such single ownership does not result in ‘overly managed’, run-of-the-mill malls with overly duplicated concepts and chain stores, as that will diminish spontaneity and creativity,” Lee added.
Tricia Song, CBRE head of research for South-east Asia, pointed out that a single landlord can curate a tenant mix that is more suited to the surrounding catchment and footfall of the area.
“For example, the CBD area may require a tenant mix with a higher ratio of services (such as banking), health and wellness (such as gyms), as well as F&B. This may differ from the Orchard Road submarket where tenant mix could have a higher focus on fashion, retail-tainment, and flagship stores for both local and international retail brands,” Song said.
Properties with improved branding and footfall may see rents and leasing demand rise. “However, vacancy levels and rents are still ultimately dependent on market demand and supply dynamics, coupled with the development’s locational attributes,” she added.
Figures from URA showed that overall rents of retail space in the central region turned a corner in the fourth quarter of 2021, rising 0.6 per cent in the first increase since Q4 2019. The island-wide vacancy rate of retail space stood at 8.1 per cent as at the end of last year, unchanged from the third quarter.
JLL Singapore consulting director, research and consultancy, Angelia Phua thinks the new rule will improve the quality and offerings of commercial properties in those districts over time, when there are redevelopment plans.
“As higher-quality malls generally attract stronger consumer foot traffic and tenants, the restriction on strata subdivision could result in lower vacancy rates at malls in the applicable areas,” Phua noted.
That said, Lam from Edmund Tie drew attention to the strengths of strata subdivided properties. “Not all strata retail is unappealing. For example, if a commercial building has a small floor plate of, say, 1,000 to 2,000 square feet, it makes little sense to insist on a single title. Carving the spaces up for a few ancillary F&B (food and beverage) units could still benefit the immediate community.”
Moreover, he has observed that strata malls offer an avenue for local entrepreneurs to kick-start their trades, especially if they find it difficult to secure spaces in conventional malls.
“And while most strata malls have the connotation of repeated trades operating in less-than-pristine conditions and providing a conduit for illicit activities, strata malls allow for the realisation of agglomeration economies,” Lam said.
For instance, both The Adelphi and Sim Lim Square are havens for consumers hunting for audio and electronics. Another example is Fu Lu Shou Complex in Bugis, which is popular for souvenirs, handicrafts and antiques. “These malls are also popular among tourists. The subdued tourism climate has shone the light on the sustainability of such business models, but arguably, they do represent an important aspect of our heritage,” he said.