SINGAPORE: Orchard Road retail rents are projected to experience a significant increase of up to 6 per cent year-on-year (YoY) in 2023, while rents in the Suburban Area are expected to maintain a steady growth rate of 1-2 per cent YoY as previously forecasted, according to property consultancy Savills.
The demand for retail spaces, particularly prime units with consistent footfall and easy accessibility, is anticipated to remain strong due to limited new supply in the near future. Retail spaces located in popular tourist destinations and major shopping districts like Orchard Road and Marina Bay Sands are expected to benefit from the resurgence of tourism.
Rents are predicted to sustain their growth trajectory, driven by the rebounding tourism sector and the low base effect from the previous year. Notably, the Orchard Planning area has seen a positive development with a 0.7 per cent decline in the vacancy rate, improving from the 13.9 per cent recorded in Q1/2023.
In the second quarter of 2023, the average rent in Savills’ basket of prime malls showed an upward trend. Rents in Orchard Road increased by 1.4 per cent quarter-on-quarter (QoQ) to S$22.10 per square foot (psf). In the Suburban Area, the average rent in the Savills basket rose by 0.7 per cent QoQ to S$14.50 psf during the same period.
However, businesses heavily reliant on local customers may experience slower sales as more individuals are expected to travel. This effect might be particularly noticeable during the year-end holiday season.
Recent closures of brands such as Crate & Barrel, UFC Gym, Haus Athletics, and Fenix Fitness have primarily targeted the local market. Moving forward, retailers may face challenges if people continue to prioritize travelling over domestic spending.
Alan Cheong, Executive Director of Savills Research & Consultancy, acknowledged the potential challenges ahead: “Recovery can be finicky as challenges abound and overall growth may ease next year with the slow global economy beginning to impact domestic spending and visitor arrivals.
Challenges such as rising operating costs and labour crunch will also put further pressure on retailers, hence reigning in their ability to accede to higher asking rents.”
According to the Ministry of Trade and Industry (MTI) report for Q2/2023, Singapore’s economy expanded by 0.5 per cent YoY, building upon the 0.4 per cent growth in the previous quarter. Retail trade and F&B services exhibited modest growth rates, with retail sales (excluding motor vehicles) experiencing weaker growth across most segments in Q2.
Similarly, the F&B segment saw a slowdown in sales growth from an average of 12.7 per cent YoY in Q1 to 4.2 per cent YoY in Q2. Factors such as revenge vacations, weakening foreign currencies, and the mid-year school holidays contributed to reduced patronage in restaurants and high-end dining establishments.
However, private dining settings offering unique experiences attracted more diners. Consequently, some high-end restaurants like Kappo Kaji at Orchard and Cuisson at Tanjong Pagar have ceased operations in response to these market conditions.