Singapore retail rents expected to continue rising in 2024

Singapore’s November international visitor arrivals fell for the fourth straight month to 1.1million, but still exceeded the 816.340 recorded in November 2022. Before the pandemic there were 1.5m tourist arrivals for November 2019.

Analysts are optimistic that Orchard Road will see a rise in rents as the result of increased tourist spending.

The tourism industry is expected fully to recover by the year 2024. High inflation and rising petroleum prices may increase travel and accommodation costs.

In the face of a weak macroeconomic backdrop, travellers may find themselves more careful with their budgets and their travel plans.

Singaporeans have been flocking to other countries, and while tourism spending has increased, their purchasing power is limited.

The recovery of tourism, and revenge spending has driven tenant sales to levels that were not seen before Covid. Rental expectations for landlords are therefore rising along with increasing property operating expenses.

Retail sales rose eight consecutive months between February and September 2023. They then dropped in October. In November, sales of S$4.1bn were recorded according to Department of Statistics.

The food and beverage sector remained the most important driver in 2023. It accounted for 48 percent of new openings. Next came fashion, health and wellness, lifestyle, and beauty.

Singapore retail property owners saw their rents recover in 2023 as they recovered from their pandemic levels, thanks to the return of tourists and increased domestic spending.

According to market observers, the increase in Goods and Services Tax and inflationary pressures may have a short term impact on spending, but they are unlikely reduce retail prices and rents.

For the year 2023, prime retail rents should rise between 1.5% and 4.1% due to strong performances in the Orchard Road & Downtown submarkets.

Rents have risen due to inflation and both demand and cost factors.

The Hill at One North Pricing

The inflation rate and to a degree the GST rise have taken some of the wind out the retail market.

Analysts say that revitalizing Orchard Road into a lifestyle hub will increase rents and prices over time.

Orchard Road property is attracting increased interest. Tanglin Shopping Centre has been sold for S$868m in 2022 while Far East Shopping Centre changes hands for S$908m. Scotts Square, a shopping centre in Singapore, has been listed for sale with a price of S$450million.

The redevelopment along Orchard Road of various older buildings could create new retail space which would attract new tenants, and could fetch higher rents. It could also transform these stretches to more vibrant and visible areas with greater foot traffic.

URA data shows that retail space of approximately 570,000 square foot (sq. ft.) in net lettable area will increase by 2024.

Although this number is higher than that of the retail space (443,473 square feet) completed in 2020 and similar to that of the 599.549 sq.ft NLA finished in 2021, the figure is still lower than 1.2million sq.ft NLA.

Retail rents will not be affected by the oversupply of retail space in 2024.

Pasir Ris Mall with 280,000 sq.ft. NLA , is one of major retail developments expected to be completed by the year 2024. Labrador Tower also has a smaller component with an estimated 30,000 sq. ft. NLA.

Rents will benefit from the additional retail space that is expected to be available in 2024. This amount is still lower than the average five-year annual supply of 0.62 Million sq ft.

She also added that the price trends for capital values are expected to be positive as well in 2024.

URA data show that the prices of retail spaces in Central Region has recovered by 0.9 per cent from its lowest point in Q1. The price index in Q3 was 26 percent below the peak levels of Q4 of 2014.

Many strata malls have an eclectic mix of businesses due to owners that operate their own retail, F&B or F&B concept and others who lease their units based solely on rent without considering concept type or synergies.

In a post pandemic world, these shopping centers would benefit from a redesigning of the mall positioning as well as the trade-mix strategy. This will provide a holistic customer experience and attract a younger generation.

Orchard Road rents are projected to increase between 3 and 5 per cent annually by 2024.

While the average rent in the suburbs is expected to be flat this year as outbound tourism and inflation dampen discretionary consumer spending in the heartlands.

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