Thursday, May 28, 2009

BTO: Rents for ground floor shops in Orchard Rd hold up

Business Times - 25 May 2009


Rents for ground floor shops in Orchard Rd hold up

But weak retail outlook, upcoming malls expected to depress rents

By KALPANA RASHIWALA

 

(SINGAPORE) The heat is on for Orchard Road retail rents with declining retail sales and substantial new supply completing soon, but Cushman and Wakefield says opportunistic retailers entering the final stages of negotiations for limited remaining choice ground-floor spots in new malls have kept demand for prime retail space firm in the first six weeks of this quarter.

 

The average monthly rental value for prime street-level retail space on Orchard Road dipped 1.1 per cent in the six weeks between end-Q1 2009 and mid-Q2 2009, lower than the 4.6 per cent quarter-on-quarter contraction seen in Q1 2009.

 

'Demand for retail space fell into a state of paralysis in Q4 2008 and early 2009 as the global economy was clouded under the tint of uncertainty. However, retailers have now moved into a state of acceptance and we are seeing more leases under negotiation,' says Cushman's associate director of retail consulting and leasing Turner Canning.

 

Cushman's average monthly rental value for prime ground floor Orchard Road retail space stood at $36.50 per square foot (psf) as at May 15, down 1.1 per cent from $36.90 psf as at end-March 2009. The latest mid-Q2 2009 figure represents a fall of 5.7 per cent since end-2008.

 

'While there is short-term resilience in prime retail rents, our forecast calls for a decline of a further 5-10 per cent in Orchard prime ground floor retail rentals through to the end of the year because of the generally weak retail outlook,' said Cushman's director of research Ang Choon Beng.

 

According to Knight Frank figures, ION Orchard, Orchard Central, 313@Somerset and Mandarin Gallery are among the new malls that will add a total 1.8 million square feet of net retail space in Singapore's prime Orchard Road shopping belt from now till mid-2010, a whopping 40 per cent increase from the current stock of 4.5 million sq ft.

 

Knight Frank managing director Danny Yeo, a veteran in the retail property consultancy sector, noted that despite the pressure from all the new shop space on Orchard Road, rents for ground floor space will probably hold up better than on the upper floors as the number of street-level units facing Orchard Road are limited in supply, whereas the supply on upper floors will be more substantial. 'So the rental drop on upper floors will be more severe than for ground floor space,' he added.

 

Cushman's Mr Canning reckons that upper floor shop space for new and existing malls on Orchard Road could today be fetching monthly rents of about $20-25 psf, lower than around $25-35 psf a year ago.

 

Knight Frank's Mr Yeo says it is difficult to quantify decreases in retail rents as traditionally measured on a fixed monthly psf basis. 'Increasingly, we're seeing more leases on a mix comprising slightly lower fixed rentals but also including a percentage of sales. This model cushions tenants when business is not on a level they want and enables them to tide over lean times, but once the market turns around, their total rental bill could be higher as retail sales pick up.'

 

CB Richard Ellis director (retail services) Letty Lee observes that retailers are increasingly being challenged by the economic downturn which is driving down tourist numbers.

 

'Coupled with the H1N1 virus, retailers face the prospect of not being able to achieve their projected turnover. The increase in supply is another challenge. Particularly for existing retailers, they will have to brace themselves for fresh competition, fresh concepts and malls incorporating new and different retail experiences,' she added.

 

Mr Yeo reckons that generally, retail sales at suburban malls have fared better than on Orchard Road over the past six to nine months. Retail turnover of suburban malls may have fallen by 5-15 per cent on average over this period, 'with the impact being a little bit more on fashion retailers than others such as those in groceries and F&B'.

 

'As for retailers along Orchard Road, for those relying heavily on tourists and big-ticket items, I wouldn't be surprised if their sales drop has been about 15-20 per cent on average over the past six to nine months, although a few may even have experienced a more substantial drop of 20-40 per cent.'

No comments:

Post a Comment