Retail rents continue to decline in 1Q2023, but at a slower rate compared to past quarters

Rents for retail spaces in Singapore’s Central Region have declined for the past three years, dropping by 22.6% from 4Q2019 to 1Q2023, according to quarterly data released by URA on April 28. Prices for retail space decreased by 0.9% in the same period, recorded a y-o-y decrease of 2.3%.

Leonard Tay, head of research at Knight Frank Singapore, believes the retail sector is in a much better position compared to two years ago. This is due, he said, to the reopening of international borders, which has seen Singapore welcoming more than one million visitors in March 2023.

Knight Frank’s tracking of prime retail rents island-wide averaged $26.40 psf per month, pointing to a 1.2% q-o-q and 5% y-o-y increase in 1Q2023. In the Central Area of Singapore, the Orchard Area saw the highest rental increase of 5.8% y-o-y to $29.50 psf pm in 1Q2023, followed by Marina Centre, City Hall and Bugis regions.

Despite these improvements, occupied retail space decreased by 75,347 sq ft in 1Q2023, reversing from the previous quarter. Correspondingly, vacancy rates increased by 0.5 percentage points to 7.6%, with a total supply of 4.38 million sq ft of gross floor area (GFA) from projects in the pipeline as at end of 1Q2023.

Tricia Song, head of research, Southeast Asia at CBRE believes that while retailers remain optimistic, they will continue facing headwinds such as manpower shortage, higher operating costs, ongoing competition from e-commerce, an economic slowdown and a Goods and Service Tax (GST) hike.

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Knight Frank’s Tay says the retail sector is now “firmly on the road to recovery from the dark days of the pandemic”. He believes that so long as Singapore remains at Dorscon green, prime rents of retail space are likely to grow between 3% and 5% for 2023.

Edmund Tie’s Lam is more cautious and expects a moderation in retail sales growth, as consumers tighten their belts and reduce discretionary spending. Tourism recovery is however expected to bolster this demand, with an anticipated increase in Chinese visitors in 2H2023. Edmund Tie is projecting prime first-storey retail rents to grow by 2% to 5% this year, with other retail segments to see 1% to 1.5% growth.