Prime rental rates flat despite tourist arrivals growth

Rents seen to increase next year as new supply in 2009 and 2010 are eventually absorbed.

Despite the record number of tourist arrivals chalked up each month this year, average prime rental rates along the highly watched shopping thoroughfare of Orchard/Scotts Road remained unchanged in the quarter, according to DTZ Research’s estimates.

Faced with a pressing need to reinvent themselves, tenant churn in the older malls along Orchard/Scotts Road have been noticeable. Performance in the new malls, which flooded the market with 1.3 million sq ft of new retail space last year, has also been uneven with some units being given up, according to a DTZ Research report.

For the third consecutive quarter, gross rents of prime first-storey space in the Orchard/Scotts Road area remained at $39.70 per sq ft per month.

“Given the new supply of retail space last year, the environment has become more competitive which does not support any increase in rentals,” Ms Anna Lee, DTZ’s Associate Director (Retail) said.

Rents in other city areas fared worse as they continued to decline, with 800,000 sq ft of new retail space from The Shoppes at Marina Bay Sands still being progressively released. The other city areas have neither the premium status that Orchard Road enjoys, nor the stable local catchment in the suburban areas.

Prime first-storey rents in other city areas, which fell marginally by 0.4% quarter-on-quarter in Q2 2010, eased a further 0.8% to $24.10 per sq ft per month in Q3 2010.

While suburban malls have the advantage of strong catchment demand, the expected increase in suburban retail space in the coming quarters from malls such as nex and Clementi Mall reined in further rate increases. Monthly gross rents of prime first-storey retail space in the suburban malls were unchanged at $33.60 per sq ft per month in Q3 2010.

“Besides the newly completed and pipeline supply which put a lid on rental increase, the opening of the two integrated resorts have also siphoned off some demand for shopping as more people spend time and money at the casinos instead of at the malls,” commented Ms Chua Chor Hoon, Head of DTZ South East Asia Research.

“However, with a robust economic recovery taking place, retail rents should increase gradually next year as the new supply in 2009 and 2010 are eventually absorbed,” she added.