The average monthly gross rent for retail space in Orchard Road might correct by up to -5 per cent in 2015, according to a report by Colliers International.
This follows a lacklustre Q2, during which monthly rent for retail space in the prime location eased from S$35.83 per sq ft in Q1 to S$35.25 at the end of June – a quarter-on-quarter drop of 1.6 per cent.
Colliers attributed this change primarily to labour and occupational cost pressures, as well as competition from new malls in the suburban regional centres; monthly gross rents for retail space in those areas managed to remain at S$33.94 per sq ft since Q1.
For regional centres, the report predicts that the average monthly gross rents of ground floor retail space could adjust between -1 and 1 per cent for this year.
This brings the current rental for retail space in Orchard Road to 3.9 per cent higher than that of spaces in the regional centres – down from the 6.9 per cent difference recorded at the end of last year.
Chia Siew Chuin, director of research & advisory at Colliers, said: “Retailers are making inroads into suburban areas to extend their reach where there are sizeable residential populations.”
“More upmarket brands are also sprouting up in decentralised areas, especially designated growth areas like Jurong East,” she added, referring to the succession of new malls that have over the past three years opened in the west, which was earmarked in 2008 by the Urban Redevelopment Authority for a regional commercial centre.
Tepid tourist numbers have also contributed to the impact on Orchard Road retail rent.
The Singapore Tourism Board (STB) currently projects visitor arrivals for 2015 to be between 15.1 million and 15.5 million, a 0 to 3 per cent growth from the previous year.
However, Q1 saw a 5.4 per cent decrease in visitor arrivals. The STB recently announced a S$20 million joint effort with Singapore Airlines and Changi Airport Group to promote inbound travel.
The report also noted that new store and F&B outlet openings are expected to continue forming the basis of leasing demand, highlighting the newly completed Capitol Piazza in the City Hall area which houses the first local outlets of several new restaurants.
In the decentralised areas, the report pointed out that restaurants and retailers are opening even in places that were previously considered off the beaten track, such as Science Park Drive and Technopark@Chai Chee.
“The retail property sector has continued to experience attrition, with reports on closure of shops and certain malls in Orchard Road suffering from poor shopper traffic and pedestrian footfalls,” Calvin Yeo, deputy managing director of Colliers International said.
“However, given the demand for more retail variety by an increasingly more affluent consumer base, new-to-market F&B and retail operators continue to set up shops in Singapore. This has helped to shore up occupancy rates of retail malls and cushion rental falls.”