Shop Rents Rising Faster In City Fringe, Suburbs Than In Orchard

Source : The Straits Times, Dec 14, 2007

Landlords enjoy good takings as demand spills over from prime belt.

ORCHARD Road may be the epicentre of shopping buzz, but malls in quieter areas are coming into their own.

Rents of shops on the city fringe and in suburban areas rose faster than those in the prime shopping belt in the October to December period, according to Knight Frank.

The property consultancy said the biggest increase in rents came from shopping malls on the fringe of Orchard Road, such as Tanglin Mall and Park Mall. Retail rents in this area climbed by 8.9 per cent in the quarter, thanks to a spillover from Orchard Road and a better tenant mix, said Knight Frank.

In contrast, rents of malls in Orchard Road proper - including Wisma Atria and Ngee Ann City - rose only 2.6 per cent. Suburban malls such as Tampines Mall and Jurong Point fell in between, with rents rising 5.8 per cent.

The main reason for this is rents in Orchard Road have already risen so much that any further increases will be quite small, said Knight Frank’s director of research and consultancy, Mr Nicholas Mak.

On the other hand, retail rents in suburban and fringe areas are starting from a lower base, so they will rise by more, he added.

Indeed, Knight Frank’s data shows that despite having the smallest rent increases, the central areas still have the highest rents, and vice versa.

In the heart of Orchard Road, average gross monthly rents have soared to double those of malls on the fringes. This is because over this year, rents in Orchard Road central have gone up the most. They rose by 17.2 per cent this year, almost double the 9.9 per cent rise in Orchard Road fringe malls. In suburban malls, retail rents rose just 7.5 per cent for the year.

But overall, it has been a good year for landlords of shopping malls islandwide.

They have raised rents by more than market experts had forecast, thanks to higher wages, a strong economy and a booming property market.

Islandwide, shop rents in well-located malls jumped by a better-than-expected 22.1 per cent for the whole year, said Knight Frank. Its report on retail rents analysed prime shop space of between 400 and 800 sq ft, typically located on the ground floor of malls, with good frontages.

But rent growth is expected to moderate next year to 10 to 15 per cent, it said. While retail sales and demand for shop space are likely to stay strong, new malls will open with 2.3 million sq ft of space. These include West Coast Plaza, Iluma at Bugis, Ion Orchard, Orchard Central and Jurong Point’s new wing.

‘Landlords who try to raise rentals in the later part of next year are likely to face stronger resistance from retailers,’ said Mr Mak.

This may come as a relief to retailers. One retailer, who asked not to be named, said she had to move a boutique out of Paragon last year when rents nearly doubled. Another outlet at Suntec City has had rents rise by 30 to 40 per cent.

‘We used to be making money at most of our shops, but now because of the rental increases we are only breaking even at some,’ she said.

‘We can handle rents rising to a certain point, but after that it is untenable.’