Colliers International , Singapore

The latest survey conducted by Colliers International on the retail market performance worldwide revealed that premier street-front retail rents in almost every region shrunk by double digits, and in some cases, by as much as half, during the past 12 months – the result of reduced consumer spending caused by the global recession.

Published on an annual basis, the global survey tracked annual retail rents (US$ per sq ft) of the world’s prime retail corridors across 127 cities in North America, Europe, Middle East and Africa (EMEA), Asia Pacific and Latin America.

While some of the rental declines were due to the effects of a generally stronger US dollar (vis-à-vis) a year ago, in general, rents were down by a significant amount – particularly in late 2008 and early 2009 – due to low demand for new stores by high-end luxury retailers, with some even giving up shop space in marginal locations. This is, in turn, attributed to a decline in demand for luxury retail items, with many of the world’s well-heeled feeling the effects of lower equity values and sizable investment losses.

With rental rates on the down, now could be viewed as an opportune time for retailers with a strong balance sheet to take advantage of the lower retail rents and expand into markets previously viewed as too expensive or difficult to penetrate.

Where does Singapore stand?
With an average rental rate of US$324 per sq ft per year, Orchard Road in Singapore took the 28th position in commanding the most expensive retail rents worldwide.  Fifth Avenue in New York topped the global retail rental chart at US$1,400 per sq ft per year, followed by Champs Elysees in Paris (US$1,203 per sq ft per year) and Causeway Bay in Hong Kong (US$1,192 per sq ft per year).

Ms Tay Huey Ying, Director of Research and Advisory, Colliers International, says, “Similar to other cities across the globe, as the financial crisis deepens and Singapore’s economy slipped into a recession in the final quarter of 2008, domestic consumers tightened their belt on fears of rising unemployment and wage cuts.  Declining visitor arrivals also affected retail sales.

Amid the less favourable operating environment, tenants became more selective and rental sensitive.  Coupled with the supply of retail space in the pipeline, Singapore’s premier retail rent started to buckle in 4Q 2008 and by 1Q 2009, rents had eased by a total of 6% to S$41 per sq ft (US$62.321) from the peak recorded in 3Q 2008.  Compared to a year ago, Singapore’s premier rents recorded a more moderate decline of 3.6% in local currency terms.

In Asia Pacific, Singapore ranked sixth out of 16 cities surveyed. Hong Kong, Tokyo (Ginza-Chuo Avenue) and Brisbane (Queen Street Mall) took the top three spots with their retail rents standing at US$1,192 per sq ft per year, US$590 per sq ft per year and US$382 per sq ft per year, respectively.

Due to the resilience of the local retail rents and the relative strength of Singapore Dollar vis-à-vis the US Dollar, Singapore’s premier retail rents has recorded a milder decline of 12%, compared to some other Asia Pacific cities.

Ms Tay observes, “What this means is our retail competitiveness against our more costly neighbours has been eroded. For example, while Singapore’s premier retail rent was 18% cheaper than those for Sydney and Melbourne in 2008, the gap has now narrowed to just 3% in the latest survey.

By the same token, Singapore’s competitiveness against cheaper neighbours – including Auckland, Bangalore, Christchurch, Delhi, Perth and Wellington – has worsened because the gap in rents have widened.

However, Singapore’s competitiveness against Beijing has improved significantly.  While Singapore’s premier retail rent was 135% more expensive than Beijing’s in last year’s survey, the gap has since narrowed to just 65% in the 2009 survey.  This is because Beijing is the only Asia Pacific city where its premier retail rents had bucked the global downtrend, gaining 26% during the survey period.”

Outlook for Singapore retail market 
Ms Tay comments, “Going forward, with no firm signs of a quick economic rebound in sight, market conditions will remain challenging in the coming months.  Consumer sentiments will remain subdued, while visitor arrivals are projected to fall by between 6% and 11% year-on-year to between 9 and 9.5 million this year.  Retailers are, hence, likely to stay cautious as long as the economy remains in the doldrums.

At the same time, with a line up of more than 2.8 million sq ft of retail space scheduled for completion in the rest of the year, landlords will face increasing pressure from tenants to lower rents in 2009.  This is especially so in the Orchard micro-market where the bulk of the supply in the pipeline will be located.

Hence, Singapore’s premier retail rents are projected to fall by between 10% and 15% in 2009.”

Notes:
1) Exchange rate: US$1 = S$1.52 

About Colliers International

Colliers International is a global affiliation of independently owned commercial real estate firms. The organization's 12,700 employees span the world in 294 offices in 61 countries. On a worldwide basis, Colliers manages 1 billion square feet, and has revenue of USD 1.6 billion.

Contact Information

Ms Seah Li Ching
Assistant Manager, Marketing & Communications
Tel: 65 6223 2323
Direct: 65 6531 8545

Ms Tay Huey Ying
Director, Research and Advisory
Tel: 65 6223 2323
Direct: 65 6531 8658

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