A retail sector research by Savills released on 17 August, suggests that vacancies are moderating while rents are weakening. The research by the prominent real estate services company noted that despite the festive spending prior to Hari Raya Aidilfitri, which lifted retail sales (excluding motor vehicles) in May, the overall sales growth for both April and May was restrained by sluggish sales of discretionary goods.
The island-wide vacancy level for the retail sector was down by 0.2 of a percentage point (ppt) quarter-on-quarter (QoQ) to 7.3% in Q2/2018, marking the lowest quarter since 2016, said the report.
It further noted that the retail rental index in the central region slipped 1.1% QoQ in Q2/2018, reversing the slight recovery of 0.1% in the preceding quarter. Savills prime monthly rents in Orchard Road and the suburban area stayed fl at at S$29.90 and S$28.80 per sq ft respectively in Q2/2018.
The research on the local retail sector suggested that although the retail industry remains very challenged, rents may be trying to find a base at current levels.
For the past few years, household income and tourism expenditure have been rising consistently and it seems counter intuitive that the retail sales index should remain subdued for so long. It asked if the new electronic payment means were causing the under-reading.
In its outlook for the prospects of the retail sector market, the Research said:
“The outlook for Singapore’s economy remains sanguine with the MTI expecting economic growth to come in at between 2.5% and 3.5%. Nonetheless, uncertainties and downside risks in the economy have been rising throughout the year. What could slow things down might be an event like an escalating US-China trade war. Owing to structural changes in the labor market, retrenchments and thus unemployment figures are likely to stay elevated. These could dampen shoppers’ confidence and cause them to tighten their purse strings.
The research showed that rise in e-commerce has inevitably affected the retail sector. However, online retail sales contributed a mere 4.3% of total retail sales in May. Instead, the experiential element of the mall has thus far turned out to be a more crucial factor for the industry. According to Kibo’s 2018 Consumer Trends report, shoppers appreciate the tactile experiences in stores. This suggests opportunities for new entrants and further expansions as long as retailers offer refreshing concepts that keep abreast of changing shopping preferences.
It is important for landlords and retailers to adapt to emerging trends and come up with new and interesting concepts to bring shoppers back into malls. Given the significant upcoming supply, retail vacancy may be on the rise. Retail occupancy may find some support from expansion plans such as the opening early next year of a new 35,000-sq ft facility at One Raffles Place Shopping Mall by the co-working operator, Spaces. UFC Gym also plans to open 15 branches in Singapore over the next ten years.
Even though these new entrants may help to lift occupancy rates, the overall rental level may be dampened by the low rents for these anchor tenants. In conclusion, much has been written about the plight of retailers and “proof” is shown by the languishing performance of our retail sales index.
We believe that while the retail industry remains challenged, it may not be as bad as it appears. Much has not been revealed about the effect of another retail payment method, that of the electronic wallet. Anecdotally, the amount of retail and F&B purchases made through electronic wallets has been growing exponentially and this payment gateway could be gradually supplanting traditional cash and credit card payment means.
The reason why we mention this point is that it is now starting to look very counter-intuitive that, on the one hand, we’ve seen retail sales figures stuck in neutral gear for a few years while during that same period, both household income and tourist expenditures have risen significantly. Although some may attribute this to the competition from online shopping, if online competition has caused retail sales to remain lackluster over the past few years, retail vacancy rates should also be increasing.
After all, not only has the retail sales index not headed anywhere since 2014, there has been an increase in retail supply. The combined effects should dilute retail sales per square foot and turn retailers’ fortunes further south. Instead, since 2016, we have seen improving retail vacancy rates.
All of this hints at a possible hidden variable(s) that is causing retail sales to remain in the doldrums. We shall be looking closely at this possibility over the next few quarters to try to uncover the causality that is dampening the retail sales index.”
https://www.icompareloan.com/resources/commercial-property-landlords/
How to Secure a Commercial Loan Quickly
Are you searching for properties in the retail sector and need a commercial loan, or are unsure if you qualify for one? iCompareLoan mortgage brokers can set you up on a path that can get you a commercial loan in a quick and seamless manner. Our brokers have close links with the best lenders in town and can help you compare Singapore commercial loans and settle for a package that best suits your purchase or investment needs.
Whether you are looking for a new commercial loan or to refinance, our brokers can help you get everything right from calculating mortgage repayment, comparing interest rates all through to securing the loan. And the good thing is that all their services are free of charge. So it’s all worth it to secure a loan through them.
For advice on a new commercial loan  or Personal Finance advice.
To speak to our Panel of Property agents.