RETAIL rents are expected to recover this year as Singapore transitions to endemic living and the gradual easing of border restrictions bring tourists back to its shores.

Rentals of retail space in the central region turned a corner in Q4 2021, climbing 0.6 per cent in the first increase since Q4 2019. In comparison, Q3 2021 saw rents decrease 2.7 per cent, according to figures from the Urban Redevelopment Authority (URA) released on Friday (Jan 28). However, for 2021 as a whole, rentals were still down 6.8 per cent, albeit narrowing from the 14.7 per cent drop seen in 2020.

Angelia Phua, consulting director (research and consultancy) for JLL, said: “Despite the multiple Covid-related measures that disrupted businesses in 2021, occupier demand grew as business confidence gradually rose with the successful roll-out of the vaccination and booster programme, Singapore’s strategy for an endemic Covid-19 and the establishment of vaccinated travel lanes.”

Against this backdrop, retailers with strong financial standing expanded their footprint, while empty spaces were quickly snapped up by new entrants to the market. However, occupier demand understandably remained soft in the Downtown Core, as most employees continued to work from home (WFH) last year, she highlighted.

URA’s fourth-quarter data also showed that prices of retail space in the central region increased 1.9 per cent in Q4 2021, after remaining flat in Q3. For 2021, prices of retail space fell 4.2 per cent, easing from a decline of 4.5 per cent in 2020.Still, prices in the fringe area bucked the overall trend in 2021 as malls located in these areas benefited from the WFH trend.

Cushman & Wakefield’s head of research, Wong Xian Yang, expects the suburban retail market to lead the recovery this year on the back of hybrid working and shifting consumer patterns, while prime retail rents should rise 2 per cent year-on-year in 2022 as the progressive easing in border curbs revives travel.

He expects prime retail rents in Orchard to increase 1 per cent this year, saying: “As net demand in Orchard retail market turned positive at about 43,000 square feet (sq ft) in Q4 2021, retail vacancy rates in the area lowered for a second consecutive quarter to 11.3 per cent in Q4 2021 and are expected to further tighten in 2022 amidst a recovering retail demand and limited new supply.”

“While net demand for Orchard retail spaces turned in at only about 32,000 sq ft for the whole of 2021, it is a solid performance, considering that net demand in the area was around -118,000 sq ft in 2019 and -355,000 sq ft in 2020,” Wong added.

Lam Chern Woon, head of research & consulting at Edmund Tie, said: “International and local brands remain on the lookout for opportunities to expand their presence in the Singapore market, especially in the prime areas and are willing to leverage the current soft climate to secure preferred locations before the eventual rental recovery.”

Lam expects suburban retail rents to grow 5 to 10 per cent this year, while prime rents in the outside central region (OCR) and other city areas are also positioned for a recovery.

Similarly, Knight Frank’s head of research Leonard Tay is also sanguine, projecting island-wide retail rents will rebound by growing 2-4 per cent for 2022.

Meanwhile, JLL’s Phua reckons that Singapore’s shift to endemic living will give retailer confidence a lift and encourage businesses to expand. This should nudge vacancy rates lower this year. She added: “Coupled with consumption growth underpinned by rising wages and tourism growth, rents should recover in 2022. A recovery in rent outlook should underpin retail asset prices in 2022.”

Islandwide, as at the end of Q4 2021, there was a total supply of 405,000 sq m gross floor area of retail space from projects in the pipeline, slightly lower than the 428,000 sq m in the previous quarter.

The amount of occupied retail space increased by 25,000 sq m of net lettable area (NLA) in Q4 2021, slowing from an increase of 33,000 sq m NLA in the previous quarter.

The stock of retail space rose by 25,000 sq m NLA in Q4 2021, after increasing 7,000 sq m in the previous quarter. With occupier demand holding steady, the islandwide vacancy rate of retail space was flat at 8.1 per cent at the end of Q4 2021.

CBRE’s head of research (South-east Asia), Tricia Song, highlighted that islandwide quarterly net absorption in the private retail segment was positive for the fifth straight quarter at 150,695 sq ft in Q4 2021, led by the fringe area where I12 Katong mall re-opened with high occupancy.

The OCR area, with a vacancy rate of 4.5 per cent, has delivered a better performance vis-a-vis all the other submarkets, she pointed out. Song added: “OCR vacancy rates are inching towards its decade-low of 2-4 per cent observed in 2013 and 2014.”

Source: https://www.businesstimes.com.sg/real-estate/singapores-retail-rents-turn-a-corner-in-q4-down-68-in-2021