A few bright spots in tough year ahead
The retail industry has seen much better days. Globally, brick-and-mortar shops are struggling to stave off the threat posed by online retailers. Consumers are also more careful when it comes to non-discretionary spending. And industry watchers say the forecast for next year is also not expected to get any rosier.
According to a survey of 460 real estate professionals in 14 countries by the Urban Land Institute and Pricewaterhousecoopers, the retail property sector is seen as one having the “weakest prospects”. However, the story in Asia Pacific is “less dire”, the survey says, as regional retail investment volume fell 7% to $16.5 billion in 1H2019. This was slower than the global rate of decline of 35%.
In 3Q2019, gross retail rents for the Orchard-Scotts Road and city area posted a 0.5% q-o-q and 0.3% y-o-y increase. In 2019, an uptick in international visitor arrivals helped to boost the retail market, says Alice Tan, senior director of research and consulting at Edmund Tie. Global sales and promotional events such as Alibaba’s 11.11 and Black Friday. Feedback from hospitality operators also indicated higher room occupancies and enquiries for confer
However, Tan expects retail leasing activity in 4Q2019 to show “a marginal slowdown” even with the year-end festivities, as consumer sentiments remain cautious due to the economic uncertainty.
Continual brand consolidation
To be sure, the retail industry has seen considerable consolidation. Brands such as Isetan, Cold Storage, Marks & Spencer, MPH and Kinokuniya have downsized their operations. Crabtree & Evelyn has shut down all physical stores in Singapore, while Sasa and Home-Fix have announced plans to end their physical presence in the city state. Sporting goods giant Decathlon is also taking over Metro as The Centrepoint’s anchor tenant.
In contrast, overall expansionary activity has been confined to retailers in the F&B, health & fitness, and kids’ entertainment sectors, says Desmond Sim, head of research for Southeast Asia, CBRE.
Tan also notes that the opening of new malls such as Jewel Changi Airport and Funan Mall showcases of how malls can attract visitors by providing new and exciting shopping experiences.
Next year, Sim expects more brand consolidation. While this is likely to be confined to brands in the weaker performing sectors, brands with a large store network could also pare down the number of outlets, leaving only flagship outlets, he says. This means stores and pop-ups must continue to provide customers with a personalised experience, says Sim.
Retail performance
Looking ahead, Sim says Singapore’s retail property supply pipeline is expected to drop to 0.2 million sq ft of space. This is significantly lower than the five-year historical average of 1.4 mil sq ft from 2015 to 2019.
Sim believes the lower supply would help cushion the extent of rental decline in 2020. Notwithstanding that, “performance of the various demand indicators — tourism arrivals, tourism receipts and retail sales — have turned less positive since the beginning of 2019 and may take time to recover,’’ he notes. Already, “consumer confidence has started to deteriorate and may take a further hit next year,” he says.
However, one positive trend has been the expansion of flexible workspaces into shopping malls in the central region, says Tricia Song, head of research for Singapore at Colliers International. Co-working player Justco, for instance, took up the third floor of Marina Square in 2018. This year, London-listed IWG, the global operator of office and flexible workspaces, also took up significant space in One Raffles Place and TripleOne Somerset.
In addition, Edmund Tie’s Tan also expects the hospitality and MICE industry to support the retail market next year, thanks to an increase in business and leisure travellers to Singapore. In fact, “we could see sustained growth in visitor arrivals and MICE activities in 2020”, she says.
Tan is forecasting rental growth in 2020 to remain flat given a confluence of factors at play that include macroeconomic headwinds, ongoing retail challenges, and support from business and leisure travellers.
CBRE’s Sim describes the retail sector as a “two-tiered market” with prime rents expected to hold up for malls which are well located and managed. Prime rents are unlikely to decline drastically and a 1% rental decline in prime rents could be seen next year, he adds.
Meanwhile, landlords will continue to come under pressure to maintain rents and occupancies in their portfolios, particularly for malls which are owned by institutional owners and REITs, adds Sim. E