The step to convert premier shopping strip in Singapore with three extravagant new malls suggests higher rents back in ordinary times. However, prime rents in Orchard Road are likely to plunge deeper by 15–20 percent in the final months of 2009, according to the newest property industry report.
The dwindling tourist arrivals, weakening economy, and a shift away from luxury goods, imply despondency for pressed retailers who own a space in the area. According to property consultancy firm CB Richard Ellis (CBRE), rents are sure to plummet if landlords would lengthen the rent-free periods, pass on property tax rebates, cut back existing rents, or if lower rent levels are set for new space.
Based on the CBRE’s newest data, the current quarter had 3.3 percent decrease in prime rents to $34.90 per sq ft (psf) average price per month from Q4 2008. For five years, Q4 2008 had suffered the first fall in rent in the shopping sector. Meanwhile, the retail segment currently flourishes as new mall completions, which are set to provide more retail space, subdue the leasing demand.
Several retailers are now asking their landlords for cut in rents, seeing that the economic crisis undermines the already-weak sales. Suburban malls now also feel the effect of economic crisis, despite the fact that it should be livelier than prime Orchard Road malls, according to experts.
CBRE stated that prime suburban rents dropped by 2.4 percent from Q4 to $28.30 psf a month. However, they are likely to fall further by 10–15 percent for the entire year, CBRE added. This rather minimal drop in suburban mall rents suggests that they are more resilient to the recession.
Letty Lee, director of retail services at CBRE, said that suburban malls benefit consumers who have a stable need for basic goods and are living nearby. Furthermore, there’s only less rivalry from new malls
“As tenant retention becomes increasingly critical to shopping malls, more landlords are likely to initiate rental incentives or repackage rental structures,” Ms. Lee said.
The request for cuts in rents has been heightened by the Singapore Retailers Association (SRA) this week as they are joined on board by three other associations. According to them, they are grouping together because of the continuous disregard of the requests for rebates. They have also advised that several retailers will fall once rent levels are not made similar with the much more fallible sales environment.
“The issue which is most pressing now and which retailers are still very concerned about is existing tenancies with high rental rates which were locked in during the good times, and which are eroding their businesses now, when sales revenues have dropped significantly,” said Lau Chuen Wei, SRA executive director. “These are the ones in danger of closure if nothing is done to stem the losses. And closure means job losses.”
SRA had previously argued for landlords to cut rents to levels in 2005 “which in many cases would be about 50per cent of current rates,” according to Ms. Lau. However, she also added that tenants aren’t expecting it to be possible. Because of this, SRA decided to moderate its position to ask for cut in rents at 20–30 percent, especially for vacant leases. Ms. Lau also said that reduction of rental rates on a long term basis isn’t expected by the industry, but for a probable six months, due to the unstable market.
Miss Lau said further that SRA is not hoping for new signings as retailers are prepared in declining a store location once the rental gets impractical.
The gloomy market certainly caused new mall openings to see a number of tenants pulling out. Such happening was experienced at City Square Residences in Kitchener Link, but developer City Developments affirmed the existing prime space was rapidly taken.