Business Times - 29 May 2009
Long-run retail space supply sustainable
By KALPANA RASHIWALA
SOME 5.8 million square feet of new retail space expected to be completed from 2009 until 2013 - the bulk of it this year - will cause temporary oversupply and put downward pressure on rents but will be sustainable in the long run, property consultancy DTZ says in a research alert.
Among other factors, it cites its projection of a slight fall in retail space per capita, assuming Singapore's population grows at the same 2.3 per cent pace it has averaged over the past 10 years.
If the population continues to grow at this rate, total retail space per capita will ease from 10.1 sq ft last year to 10 sq ft by 2013. It eased from 12 sq ft in 1999 to 10.6 sq ft in 2007.
DTZ also reckons leakage of retail spending is not significant. 'Although there is leakage of domestic spending, this is more than made up by an increase in foreigners spending in Singapore,' says the firm's senior director and head of South-east Asian research Chua Chor Hoon.
For example, she notes that although the spending by Singapore visitors to Thailand and Hong Kong rose 36 per cent and 177 per cent respectively between 2003 and 2007, this was not significant at only 3 per cent of total retail sales in Singapore in 2007.
DTZ's figures show 3.3 million sq ft of new retail space will be completed this year, comprising 1.3 million sq ft in the Orchard/Scotts area, 1.7 million sq ft in Other City areas and the rest in the suburbs.
'Occupancy and rents of retail space in 2009 will be under downward pressure, particularly in Orchard/Scotts Road and Other City areas, where the majority of new supply in 2009 will be located,' the firm says. 'There will be opportunities for retailers to negotiate for lower rents or relocate and expand to better premises this year.'
Ms Chua predicts the average first-storey monthly fixed rental value of prime space in Orchard/Scotts roads will ease 7 to 13 per cent for the whole of 2009 and post 'a minus-5 per cent to zero per cent change in 2010'. Last year, the figure initially rose, but the entire gain was given up, to end the year unchanged at $41.80 psf.
DTZ says 2009 will be a challenging year for Orchard/Scotts and Other City areas, as retailers face consumption cutbacks while landlords worry about securing tenants in view of the imminent supply and falling visitor arrivals.
However, beyond 2009, when the US and Singapore economies are expected to recover, the new supply is not excessive, according to DTZ.
It believes the addition of 1.3 million sq ft of shop space in Orchard Road this year will give new retailers the chance to gain a foothold on the local scene.
And it sees the rejuvenation of Singapore's premier shopping belt through new malls, new retail concepts and new brands as vital to maintain the island's status as a world-leading shopping destination.
In Other City areas, DTZ notes that besides the new retail space from projects like Marina Bay Shoppes, the completion of new offices and hotels will mean the ratio of retail space to offices and hotel rooms will fall by 2013. Major sources of shoppers for retailers in these areas are the local working population and guests in nearby hotels.