New study will address growing trend of Reit-owned malls
IT IS Asia’s ninth most expensive shopping street, where all major luxury brands of the world converge.And soon, posh Orchard Road — together with its humbler cousins in Hougang or Bedok —will come under more scrutiny in the Government’s first comprehensive study on retail mall rentals.
The study is being done by none other than the Competition Commission of Singapore (CCS) — a statutory board under the Ministry of Trade and Industry — which was formed two years ago to help eliminate or control practices which have an adverse effect on competition.
In its tender for consultants to lead the six-month long study, it said it wants to better understand the demand for such rental space and the key issues affecting this competitiveness, such as the growing trend of more malls being owned by Real Estate Investment Trusts (Reits).
Property analysts welcomed the study, saying it was timely considering how rental rates have been heating up, especially in the downtown area.
Propnex chief executive Mohamed Ismail said: “The retail mall rental market is becoming more sophisticated. More Reits are coming in, they’re gaining a foothold. My take is that rental space is still fairly adequate and not that tight, because of so many new players coming in.”
Just last month, both CapitaLand and Hong Kong’s Sun Hung Kai Properties unveiled plans for new shopping centres along Orchard Road — the $700 million Ion Orchard and the $650 million Orchard Central near Somerset MRT station respectively. Both will open by the end of next year and boast a total of about 800 shops and food outlets.
The trend of more Reit-owned malls, he said, was uncommon several years ago but was now fast making its presence felt and raising expectations about how retail shops should perform.
Smaller tenants have long complained about how Reits — which derive income from rentals — have caused rents to creep up due to the unceasing drive for higher shareholder returns.
For the first six months of this year, rents for retail space at Grade A malls in Singapore went up by between 5 and 7 per cent, said property firm CB Richard Ellis.
Rents of units on levels with the highest traffic along Orchard Road registered an average of $34.40 per square foot (psf) a month, close to the average of $35.10 in 1996. There is room for another 5 to 6 per cent rise by the end of the year, it added.
Chesterton International’s head of consultancy and research Colin Tan hoped the CCS’ findings would bring out the plight faced by small and medium enterprises (SMEs) in the rental market.
“The way the retail scene is shaping up, it affects SMEs the most. I believe the Government is concerned for them, seeing how bigger players who can afford higher rents are squeezing them out,” he told TODAY.
He described how one well-known pharmacy would bid high amounts to secure prime space in a mall, with its main purpose being to maintain market presence and not to make big profits.
His view was echoed by Savills Singapore’s marketing and business development director Ku Swee Yong, who spoke of how one famous label regarded lucrative rental space as part of its branding exercise.
“They treat their rental costs as part of their marketing budget. They see it as a good investment and much cheaper than advertising in the media. It’s all about visibility,” he said.
Mr Ku urged the CCS to continue such studies and publish the findings, to “show where the benchmarks are”.
When contacted for comments, a CCS spokesman said the study was part of its efforts to build up knowledge of different industries in Singapore.
“The study is the first market study that we are undertaking,” he said, noting that competition authorities in the United Kingdom, for example, undertook studies to see if there were competition-related issues that needed looking into.
Upon completion of the study by next March, the CCS will decide how best to make use of the study findings and could share them with relevant stakeholders
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