Rental Growth Retail Moderates Below Expectations Weak Spending
SINGAPORE’S RETAIL PROPERTY MARKET FACES CHALLENGES AS CONSUMER SPENDING FALLS SHORT
According to Alan Cheong, executive director of research and consultancy at Savills Singapore, retail property market in Singapore is expected to be dampened by weaker-than-expected consumer spending in 2024. He points out that the monthly retail sales index (excluding motor vehicles) and food and beverage (F&B) sales index have mostly recorded negative changes throughout the year, reflecting the sluggish consumer spending.
Cheong forecasts a modest 2% increase in rent for retail properties in the prime Orchard Road submarket by the end of the year. This falls short of the 3% to 5% increase that was initially expected at the beginning of the year by Savills. In contrast, suburban retail rents are expected to remain flat, in alignment with the initial forecast for this segment.
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According to a joint research by DBS and Singapore Management University (SMU), consumer concerns over higher-than-expected inflation have eased in recent quarters. The research, led by SMU’s Sim Kee Boon Institute for Financial Economics (SKBI), also found that most Singaporeans believe inflation will stabilize in the coming months due to the global economic slowdown, high interest rates, and potential easing of supply chain disruptions.
In October, retail sales (excluding motor vehicles) increased by 0.3% y-o-y, reversing the previous month’s decline of 1.5%. Cheong says that a better outcome for the retail market would be if consumer spending kept up with inflation. However, the low spending rate poses financial challenges for businesses in the industry.
Even though Singapore has hosted many headline concerts, conferences, and exhibitions this year, retail spending and rental rates saw limited support. According to CBRE’s research published last month, the footfall generated by these events had a nuanced effect on surrounding malls.
The Monetary Authority of Singapore estimates that over half of the 500,000 attendees at Taylor Swift and Coldplay concerts were foreigners, contributing between $350 million and $450 million in tourism receipts. However, other MICE (meetings, incentives, conferences, and exhibitions) events did not have a significant impact on retail activity, according to CBRE Research.
In addition to concerts, Singapore also hosted various leisure and business events, including the Formula One Grand Prix, the 25th World Congress of Dermatology, The Meetings Show Asia Pacific, NRF 2024, and ART SG. According to CBRE’s observations, business event attendees tend to stay at the event venue, and even the F1 race, one of Singapore’s most prominent international events, did not significantly boost foot traffic in tourist-centric areas like Orchard Road.
Despite this, Sulian Tan-Wijaya, executive director of retail and lifestyle at Savills Singapore, says that Singapore’s premier status as a regional hub continues to attract noteworthy new-to-market brands. She adds that this year, notable retail stores like KSisters, The Pace, Brands for Less, and Hoka have opened in Singapore. The wellness sector is also evolving with new concepts like Rekoop and Hideaway, and many new F&B concepts have been introduced, such as Sushi Samba and coffee chains like Blue Bottle, Grey Box, and Puzzle Coffee.
However, the footfall generated by these events had a limited impact on rental rates, and landlords may have more flexibility to make positive rental adjustments next year as the supply of new retail spaces becomes limited. Additionally, Cheong anticipates that more retailers will optimize their real estate strategies, such as right-sizing their spaces, establishing additional kiosks, closing under-performing branches, or shifting cooking operations to central kitchens.
He also believes that there is strong momentum in the entry of new-to-market F&B brands into Singapore, and this trend is expected to continue in the first half of 2025. Cheong sees this as an opportunity for retailers to remain relevant in the rapidly evolving consumption patterns of both locals and tourists.