Rental Growth Retail Moderates Below Expectations Weak Spending

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Consumer spending in Singapore has been weaker than expected, causing a dampening effect on rental forecasts for the country’s retail property market by the end of the year.

According to Alan Cheong, the executive director of research and consultancy at Savills Singapore, the monthly retail sales index (excluding motor vehicles) and food and beverage (F&B) sales index have seen mostly negative changes throughout 2024. As a result, Cheong predicts that retail properties in the prime Orchard Road submarket may only see a 2% increase in rents by the end of the year. This falls short of earlier expectations by Savills, which had predicted a 3% to 5% hike in prime Orchard Road rents at the start of the year.

Meanwhile, Cheong believes that suburban retail rents will remain stagnant for the rest of the year, which was in line with his initial rental forecast for this market segment.

A joint research report by DBS and Singapore Management University (SMU) revealed that consumer concerns about higher-than-expected inflation have moderated in recent quarters. Despite this, Singaporean consumers’ headline inflation expectations have remained at 3.8% between June and September. The study, led by SMU’s Sim Kee Boon Institute for Financial Economics, also found that most Singaporeans who expect inflation to stabilize in the coming months attribute this to the global economic slowdown, high interest rates, and potential easing of supply chain disruptions.

In October, the Singapore Department of Statistics reported a 0.3% year-on-year (y-o-y) increase in retail sales (excluding motor vehicles), reversing the 1.5% y-o-y decline in September. According to Cheong, a more positive outlook for the retail market would be one where consumer spending keeps pace with inflation. However, the relatively low level of consumer spending could pose financial challenges for businesses in the industry.

This year, Singapore has hosted numerous headline concerts, major events, and exhibitions, such as the Taylor Swift, Blackpink, Coldplay, and Westlife concerts. The Monetary Authority of Singapore estimates that over half of the 500,000 attendees at these concerts were foreigners, contributing between $350 million and $450 million to tourism receipts. While these events typically drive higher foot traffic to nearby malls, with some exceptions, they have had a nuanced impact on retail activity, according to CBRE research.

Business events, such as the Formula One Grand Prix, the 25th World Congress of Dermatology, The Meetings Show Asia Pacific, NRF 2024, and ART SG, have not significantly boosted retail activity. CBRE also observes that attendees of business events tend to stick to the event venue, while the F1 race, which generates an annual average of $125 million in tourist receipts, did not significantly impact foot traffic in tourist-centric areas like Orchard Road.

Savian Tan-Wijaya, executive director of retail and lifestyle at Savills Singapore, notes that despite the limited support from these events, Singapore’s status as a premier regional hub continues to attract new-to-market brands. “Some notable retail stores that opened in Singapore this year include KSisters, The Pace, Brands for Less, and Hoka. The wellness sector is also evolving with new concepts like Rekoop and Hideaway,” she says. Additionally, there have been numerous new F&B concepts, including Sushi Samba and coffee chains like Blue Bottle, Grey Box, and Puzzle Coffee. The year has also seen the emergence of new restaurant concepts with entertainment, such as Centre of the Universe and the upcoming Rasa in the Central Business District (CBD).

Thanks to these new-to-market retail brands, F&B concepts, and wellness experiences, demand for retail spaces and rents has been supported. As a result, all prime shopping malls along Orchard Road have maintained relatively high occupancy rates this year. According to Savills’ Cheong, “Singapore remains an attractive destination for new-to-market brands entering the region, spanning retail, F&B, and other lifestyle concepts.” Tan-Wijaya adds that these new entrants have bolstered demand for retail spaces and supported rental growth, especially in central Singapore.

Tan-Wijaya also notes the emergence of new wellness concepts and restaurants offering entertainment, which are expected to enhance the vibrancy of Singapore’s dining scene. Cheong adds that with the limited supply of new retail spaces, landlords may have more flexibility next year to implement positive rental adjustments. This will allow them to strategize and position their malls to remain relevant amidst the rapidly evolving consumption patterns of both locals and tourists.

Similarly, Cheong predicts that more retailers will seize the opportunity next year to optimize their real estate strategies. This could include right-sizing their spaces, establishing additional kiosks, closing under-performing branches, or shifting cooking operations to central kitchens. “There is strong momentum in the entry of new-to-market F&B brands into Singapore, and this trend is expected to continue through at least the first half of 2025,” says Cheong.