Raffles Place Retailers Face Space Crunch, Soaring Rents

Source : The Straits Times, Nov 8, 2007

Rent may double for some, with near full occupancy and no fresh supply of space in the short term.

SOARING rents for retail office space at Raffles Place have stunned Ms Yeap Cheng Guat, the executive director of Cedele By Bakery Depot, which has two outlets in the major office hub.

‘Rents have gone up by 100 per cent. It’s that crazy,’ she said.

The bakery cafe chain has operated at Republic Plaza for about eight years now and has a newer outlet at One Raffles Quay.

Singapore’s office space crunch is spilling over to tenants like Cedele in office districts such as Raffles Place.

‘When they told me about the increase, I nearly fell off my chair,’ Ms Yeap said.

‘If my rentals rise by 100 per cent, can my food price increase by the same?

‘Then the tenant can sell only bird’s nest and abalone,’ she said, referring to expensive delicacies.

Occupancy levels for retail space such as cafes and fashion outlets in Raffles Place are close to 100 per cent.

A recent study by property consultant Cushman & Wakefield found rent rises of up to 24 per cent over the past two years in the area.

Supply of shop space is tight with no major new retail space expected for the financial district in the short term.

That means retail rents there will keep rising by another 10 to 15 per cent in the year ahead, the firm’s managing director here, Mr Donald Han, told The Straits Times. This is up from about 14 per cent in the last 12 months, he said.

The rise is relatively high, considering that rentals in the traditional shopping belt of Orchard Road have experienced single- digit rises in recent years.

Overall, rentals for prime retail space are expected to climb by 15 to 20 per cent year on year, with capital values up by 10 to 15 per cent, according to Knight Frank.

Ms Maye Kwok, 32, who sells bags and shoes from a ground-level shop at The Arcade, is convinced she will soon be paying higher rent.

‘Across the board, rents have gone up. My neighbours here have paid higher rents. I am 100 per cent sure they will raise the rent when my lease is up for revision.’
Mr Han said the office space crunch was affecting nearby retail space.

‘Most developers within the financial district prefer to maximise office use rather than retail,’ he said.

‘The irony is that when more offices are built, retail demand from the office population will grow in tandem.’

Most retail centres in Raffles Place such as OUB Centre, Raffles Xchange, One Fullerton and Republic Plaza are enjoying full occupancy.

Average gross rent for Raffles Place ground-level shops is between $18 and $35 per sq ft (psf) a month - well up from $13 to $25 psf two years ago.

Basement level space is between $12 and $25 psf a month, again well up from $9 to $18 psf two years back.

On the upper floors, which have less pedestrian traffic, rents hover between $8 and $14 psf a month, up from $6 to $9 psf a month two years ago.

As Raffles Place’s retail rents rise, several landlords have already started to either reposition their retail developments or add new retail supply, said Cushman & Wakefield.

Sino Land, the Hong Kong-based sister firm of property developer Far East Organization, recently announced plans to revamp a 26,000 sq ft retail and entertainment complex at Clifford Pier, a site that it had obtained late last year.
At OUB Centre, an additional 32,000 sq ft of retail space will be added, said Cushman & Wakefield.

It noted that newly retrofitted projects like the Market Street carpark have done well, with space nearly fully leased out at $10 to $25 psf a month.

‘The retail market situation in Raffles Place is coming to a level where nothing is available. This sub-market is being ignored when there is demand,’ said Mr Han.