In lean times, malls face the problem of plenty

In lean times, malls face the problem of plenty
Rental premium commanded by prime space in Orchard Road over similar space in regional centres has narrowed, from 8.4 per cent at the end of June to 7.5 per cent at the end of September, according to Colliers.

Retailers are already feeling the heat from e-commerce and dwindling tourist spending but worse could come, with more malls set to open before the end of the year, competing for shoppers.

Seletar Mall in Sengkang and One KM in Paya Lebar will hold their grand openings at the end of the month, while Big Box in Jurong East promises to open by Christmas.

A glance at the recent financial results of real estate investment trusts (Reits) points to the problems facing the industry. CapitaMall Trust reported a 1.5 per cent fall in shopper traffic at its 16 malls for the nine months to Sept 30 from a year earlier, while tenant sales dipped 3 per cent.

Starhill Global Reit noted that while shopper traffic was up 6.3 per cent at the five floors of Wisma Atria, which it manages, in the three months to Sept 30, tenant sales were down 8.7 per cent from a year earlier.

Mr Jonathan Kuah, a spokesman for Starhill, highlighted the importance of tourist spending, noting that it usually accounts for up to 50 per cent of sales at the reit's Orchard Road properties.

"Tourism has slowed due to the austerity drive in China, the strong Singapore dollar, weaker consumer sentiments and the diverting of Chinese tourists to other regions, including Korea and Japan," said Mr Kuah.

Reits are betting that Singapore's reputation as an attractive location for new international retailers could lift the outlook for the sector. Consultants are also noting more inquiries from overseas retailers - a healthy sign as domestic firms are unlikely to be able to absorb the upcoming new space alone.

About 5.7 million sq ft of retail space - the equivalent of almost six VivoCity malls - is expected to be created between now and 2019, said Ms Lee Lay Keng, regional research head at DTZ.

Consultants think the sizeable increase may put pressure on rents or lower occupancies, if developers refuse to budge on their asking rates.

Mr Desmond Sim, head of research for CBRE Singapore and South-east Asia, expects average mall rents to fall by 3 to 5 per cent within the next six months, as the influx of new supply will also mean weaker demand for secondary space, such as shop units on higher floors, where foot traffic is lower.

More store consolidations took place in the third quarter, he said, as retailers "closed less profitable outlets to focus on better performing ones while some looked to pre-terminate their leases". Combined with their more cautious expansion plans, tenants seem to be putting up more resistance to higher asking rents, said consultancy Colliers. The basket of retail space tracked by Colliers shows that the rental premium commanded by prime space in Orchard Road over similar space in regional centres such as Woodlands, Tampines and Jurong East has narrowed, from 8.4 per cent at the end of June to 7.5 per cent at the end of September.

But this trend could be reversed in the longer term as more heartland malls open their doors.

"Of the 2.5 million sq ft of retail space to be completed by the end of 2015, the largest supply will be concentrated in the suburban areas, with about 1.8 million sq ft," noted Ms Lee.

"Although Seletar Mall and One KM have reported healthy pre-commitment rates, that of other large malls such as Waterway Point are still unknown.

This could put a cap on suburban retail rents.


This article was first published on November 15, 2014.
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