Sentiment in the retail property market is expected to remain mixed in 2016 with prime retail rents likely to remain under pressure, while prime rents in regional centres will likely remain resilient and stay relatively unchanged in the year, said Colliers in a report on Wednesday.
This is largely an extension of the situation seen in Q4 2015. Indeed Q4 saw some retailers report deteriorating trading results and profit warnings, while others continued confidently with their expansion programmes.
Music retailer HMV for instance closed its last outlet at Marina Square in September 2015, although it announced on its website there are plans to reopen a new store in the near future. Homegrown fashion brand M(phosis closed all its Singapore outlets in November. Retailer and property group Metro Holdings also closed its 56,000 sq ft City Square Mall store when its lease expired at the end of the year.
On the other hand, several major flagship stores were opened by foreign retailers. These include Hong Kong-based Pedder Group which officially opened its 20,000 sq ft Pedder on Scotts store at Scotts Square in October. French womenswear label Maje opened its first Singapore flagship store at The Shoppes at Marina Bay Sands in the same month.
Retailers generally maintained a cost-conscious stance in Q4 while landlords showed greater propensity to consider offers.
Notably, the Orchard Road micro-market, which is more dependent on tourist traffic, registered the steepest fall in rents among the retail submarkets in Q4 2015, as it entered its seventh consecutive quarter of decline.
During the quarter, the average monthly gross rent for ground-floor shop space on Orchard Road dropped another 1.2 per cent quarter-on-quarter to S$34.40 per sq ft. This was the same rate of decline seen in Q3 2015. For the whole of 2015, rents were down by 4.9 per cent, which was steeper than 2014's 0.8 per cent fall.
In contrast, the average monthly gross rent of ground floor space in the regional centres, which had the advantage of a ready population catchment, held steady for the third consecutive quarter at S$33.94 in Q4 2015. For the whole of 2015, rents were up by a slight 0.3 per cent year-on-year, albeit at a slower pace of rental growth compared to 2014's 1.1 per cent improvement.
On the strata-titled sales front, transactional activity remained muted in Q4. This was due to the subdued investor interest, the slowing leasing market, as well as the continued effect of the Total Debt Servicing Ratio (TDSR) requirement.
Caveat records from the Urban Redevelopment Authority's Real Estate Information System (Realis) on Feb 22 showed 41 caveats were lodged in Q4 2015, down 37.9 per cent from the 66 caveats lodged in Q3 2015. This was also half the 82 caveats lodged in Q4 2014.
The imputed average capital values of prime Orchard Road strata-titled retail space remained unchanged at the previous quarter's level of S$6,667 per sq ft as of Q4 2015. However, compared with Q4 2014, the imputed average capital value for prime retail space in Orchard Road dropped by 4.0 per cent. This was also the first decline in six years and can be attributed to the softening rents.
For prime retail space in the regional centres where rents showed greater resilience, the imputed average capital values held steady for the seventh consecutive quarter at S$4,491 per sq ft as of Q4 2015.
Looking ahead, Colliers said it expects prime rents in the Orchard Road micro-market could ease by up to 5 per cent in the coming year. Prime rents in the regional centres, on the other hand, are expected to stay relatively unchanged.
Meanwhile, sales of strata-titled retail units (including those in mixed-use developments) are likely to remain subdued during 2016. This is in view of the challenging leasing market conditions, the continued effects of the TDSR and rising interest rates.
Coupled with softening rents, the imputed average capital value of prime retail space in the Orchard Road micro-market is expected to ease by up to 3 per cent in 2016. For similar space in the regional centres where rents are more resilient, the imputed average capital value is expected to slip at a slower rate of up to one per cent in 2016.
This article was first published on March 3, 2016.
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