Shoppers' paradise lost? Singapore's malls suffer as locals, tourists curb spending

SINGAPORE - After serving only a handful of customers in five hours on a recent weekday, Sam Goh said he was worried the sportswear shop he manages, LIV ACTIV, will eventually join other brands in leaving Singapore's Orchard Road shopping boulevard.

Singapore's reputation as a shoppers' paradise, which saw investors pour S$10 billion into retail developments here in the past five years, is taking a pummelling because of weakness in the local economy and a drop in spending by tourists.

Commercial space has increased by a tenth in that period, but vacancy rates have risen to 7.3 per cent from 5.0 per cent and industry analysts expect them to keep rising. "Instantly when you enter this mall you see emptiness," said the 44-year-old Goh, whose shop gave up a quarter of its space last month to cut costs.

No tenants, and no shoppers

  • Empty shopfronts and hoardings are not what you would expect to see at newly renovated shopping complexes, and even less so along Singapore's premier shopping street.
  • Yet that is what you will find when you walk into many of the malls in town.
  • From Orchard Road to the Marina Bay area, malls are struggling with too much retail space, as landlords scramble to attract and retain tenants.
  • This dire retail pickle has made hoardings with stock phrases "Working to serve you better" and "A new shopping experience awaits" the default decor in many malls.
  • It is a classic chicken-and-egg situation. Empty and boarded-up spaces give a poor first impression and attract few customers. Low footfall is bad news for existing tenants and fails to attract new ones.
  • At Shaw Centre, which reopened in 2014 following a massive renovation, about half of the units in the five-storey mall are behind colourful hoardings displaying contact details for leasing inquiries.
  • Next door at Pacific Plaza - once home to Tower Records and fashion brands Miu Miu and Prada - the same dismal scene beckons. Save for an Adidas Originals store, all units on the ground floor are vacant.
  • Stretches of vacant units can be seen in Claymore Connect, the former Orchard Hotel Shopping Arcade. It reopened last October after a revamp and two F&B units have already opened and shuttered in the four- storey mall.
  • Millenia Walk's management says the mall has increased occupancy by more than 20 per cent in the last year and is on track to achieve its occupancy goal of more than 90 per cent by the end of the year.
  • Potted plants are used to fill up space on level two, where there appears to be more empty units than occupied ones.
  • The entire section where Harvey Norman used to be has been cordoned off. A fitness and performance centre is slated to take over the space in October.
  • Bank executive Melissa Tan, 31, who works at one of the nearby office towers, says she goes to the mall for lunch with her colleagues. "Apart from the food, there's nothing much for me to buy or see here."
  • Over at Suntec City, a $410- million redevelopment plan, which took three years to finish, does not seem to have attracted enough tenants to fill up the vast expanse of retail space.
  • One section between Towers 2 and 3 on level three is almost a deadzone. Kiddy rides fill some of the empty spaces.
  • Vacated shops have paper crudely pasted over their signboards and some tenants seem to have left hastily, leaving behind store furniture and display shelves.
  • A store assistant at a furniture shop on that level, who wants to be known only as Mr C. Ho, 38, says he has seen tenants come and go in just the six months that he has been working there.
  • With The Centrepoint currently undergoing renovations, bright red and white hoardings can be seen on nearly every level.
  • While the boards feature happy faces and mouth- watering food pictures, they also make the place feel like a building in stasis.
  • Orchard Road has been especially hard-hit by a dip in tourism spending, which declined 6.8 per cent to $22 billion last year.
  • At Orchard Central, tenant Michael Chen, 35, says: "From levels one to four, there're so many hoardings because of renovation, it's like a dead mall."
  • The renovations are scheduled to be completed later this year. The shops on the lower levels are open for business, but the hoardings make these stores more difficult to find.
  • The many hoardings also give the impression that the entire mall is closed for renovation.
  • A salesman at a boutique on level five, who declines to be named, says: "Sales have dropped by more than 50 per cent since the renovations started."
  • "People think the mall is closed. Especially tourists. When shoppers see that level two has so many hoardings, they don't go to the higher levels."
  • Walking around Wisma Atria, the units are fully filled at basement one and there is a healthy crowd at Food Republic on level four.
  • But levels two and three are rather quiet, after department store Isetan closed last year. It is in the midst of renovations and leasing out the space.
  • From now till June 30, level one where Isetan used to occupy, is taken up by a pop-up flea market by Workshop Element (W.E.) and Togetherly.
  • Though the higher levels of the mall are mostly filled with various tenants that include fashion outlets, jewellery stores and hair and nail salons, the first level of Far East Plaza looks almost deserted.
  • While levels two through five have the odd handful of shuttered units, level one has at least 20 empty units.
  • The only busy spaces on the level are the F&B outlets which include bubble tea store Gong Cha and noodle restaurant Eat.
  • In spite of the many vacant units and stretches of hoardings, landlords contacted say their malls have a healthy occupancy rate: Mandarin Gallery says it is 94 per cent occupied while Orchard Gateway is 98 per cent occupied.
  • But tenants tell a different story. A tenant who wants to be known only as Mr Ho, 52, has a store in basement two in Orchard Gateway. "We see fewer than 10 walk-ins a day. Some days, we don't even make any sales."
  • At Mandarin Gallery, there are many empty units on levels two and three. Some have concrete flooring showing, while others are dusty. The busiest-looking areas of the mall are the rest areas, where the couches are usually fully occupied.
  • Landlords are trying various ways to fill quiet aisles, from offering space to pop-up stores to cutting rentals. Orchard Gateway and Orchard Central offer some tenants rental rebates of between 20 and 30 per cent a month.

Further down the street, cashiers play games on their phones, while some shop assistants have improvised a mini-golf game along a quiet corridor of a shopping center. Thirteen of 16 units on the 5th floor lack tenants. 

Store space in places with lower foot traffic is getting few takers. For example, in a suburban area on the west side of Singapore, more than two-thirds of a basement shopping center that has been open for almost two years remains empty.

These are all signs of bets that have gone wrong: that the domestic economy would remain robust, allowing demand from this city state of 5.5 million people to stay strong, and that retail splurges by visitors from the rising middle classes in China, India and Southeast Asia would keep increasing.

For Singapore this is not a small thing - wholesale and retail trade vies with manufacturing to be the biggest contributor to the city-state's gross domestic product and it is the biggest employer here.

But the sluggish global economy has put a brake on spending by Singaporeans, especially workers in hard-hit export sectors. Shoppers from abroad, meanwhile, spent 7 per cent less in the first nine months of 2015 than they did in the same period of 2014.

LANDLORDS HIT

Wealthy Chinese, hit by an economic slowdown and a corruption crackdown at home, have less appetite for the luxury items they flocked to Singapore to buy during the boom years.

China also has built many of its own luxury malls and has even set up duty-free paradises in local tourist hot spots to lift consumption and spur domestic tourism.

And Indonesians, Thais and Malaysians now have cheaper versions of the same products back home. A luxury bag made by Coach can now cost twice as much in Singapore as in these countries.

In Bangkok and Jakarta, retail space has risen 20-25 per cent in five years, with vacant space shrinking, data from real estate firm CBRE shows.

"Many rich Chinese used to come and spend money on luxury items and that is no longer the case and in the region you have a lot of competition," said Christine Li, director of research at commercial real estate services company Cushman & Wakefield. "I am pessimistic about retail here," she said in reference to Singapore.

The deteriorating retail outlook is among several challenges faced by Singapore's property sector, which includes developers and real estate investment trusts or landlords, with shares of companies such as Frasers Centrepoint, Capitaland and Wheelock Properties losing 10-20 per cent in the past 12 months.

More than 2 million square feet of new retail space will be ready for occupation in Singapore by the end of 2017, and it won't be easy to find tenants. But many of the bigger developers are partially protected from the downturn because they are present across segments like hospitality or homes in other Asian markets and beyond.

"Over the next three years you can see that supply is fairly strong and although the first quarter was fairly resilient, you're not seeing much revenue growth," said Joshua Tan, an analyst with Maybank Kim Eng, referring to real estate investment trusts. He said that many of the retailers suffered from having similar product offerings to their rivals.

Sales of apparel and footwear in Singapore dropped 3.5 per cent year-on-year in March and 14.6 per cent in February, with brands such as British apparel brand New Look and Celio of France planning to close branches in Singapore this year.

Seth Kok from SG Debt Busters, has seen a 23 per cent increase so far this year in shopowner clients seeking advice on how to reduce debt or deal with bankruptcy.

Retailers "expanded way too fast," said Kok. "But things turned bad ... everything started when China slowed down."

THE GREAT DISCOUNT

Internal factors are at play as well. Measures to give Singaporeans priority for jobs have curbed the number of expatriates on juicy salaries. Wage growth is expected to slow to 2.5-3.0 per cent in 2016, compared with a 10-year average of 3.6 per cent.

"We cannot fight these major trends," said Stephen Goh, executive director at Orchard Road Business Association, mentioning the job curbs, a strong currency, weaker tourism spending and a tendency for more Singaporeans to shop in cheaper malls overseas.

Many hopes are pinned on "The Great Singapore Sale", an annual marketing event, which started on Friday and will last 10 weeks this year. But discount signs have been ubiquitous across the island for some time.

Robinsons department stores have been offering up to 70 per cent off a variety of goods for the past two weeks.

Rising interest rates prompted by the US Federal Reserve's hike in rates in December have also restrained domestic spending. Mortgage consultants say the monthly cost of repayments on a mid-range condominium apartment goes up by S$400 for every 1 percentage point rise in Sibor.

"My family and I used to shop ... almost every week," said 50-year-old store manager Dino Ahmari, who pays a mortgage. "Now we make it a point to spend only once every two months."

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