Buzz On Orchard Rd As Ion Rents Hit $80 PSF

Source : The Business Times, July 23, 2008

Luxury retail rentals enter unfamiliar territory with new benchmark

A new benchmark for retail rents on Orchard Road has been set at Ion Orchard with tenants paying a base rent of up to $80 psf per month. This is 60-80 per cent higher than the current average prime, first-storey Orchard Road rents.

Opening next year: Sources say that $80 psf appears to be the new asking rent for prime space at other new malls including Orchard Central

Orchard Turn Developments CEO Soon Su Lin also revealed that Ion Orchard, a joint project of CapitaLand and Sun Hung Kai Properties, is now 50 per cent leased, with more than 30 per cent of the retailers setting up flagship stores.

'We have to-date, 45 confirmed new-to-market brands and newly created concepts by established operators,' she added.

Ms Soon was speaking at a press conference to announce its newest tenants as well as to reveal Ion Art - an art and design programme which will introduce new and multi-media art into the 'integrated mall experience'.

With less than a year to go before Ion Orchard opens, Ms Soon said that the construction is still on schedule. Ms Soon did not reveal a fixed date for completion, but said that the mall will open in time for retailers to showcase their Spring/Summer '09 collections.

While luxury retailers at Ion Orchard like Louis Vuitton and Prada are going to have to sell a lot of handbags and shoes to cover the luxury rents, sources say that $80 psf appears to be the new asking rent for prime space at other new malls including Orchard Central.

DTZ Debenham Tie Leung senior director (research) Chua Chor Hoon believes that while it appears that a new benchmark has been set, 'the $80 psf rental rate is likely to apply only for very prime shop units on the ground floor with good frontage'.

According to DTZ, the current average for prime, first-storey retail space in Orchard Road/Scotts Road area is $42.40 psf per month and $23.80 psf per month for prime upper storey retail space.

But Ms Chua did add: 'For a new mall like Ion, sitting on top of the MRT station and sitting at a busy junction, the average rent would be higher.'

Rents at Ion Orchard do start at $20 psf per month and this is likely to be for units at the basement levels, which will include F&B outlets and bridge brands.

Still, Knight Frank director (research and consultancy) Nicholas Mak says that even at $20 psf per month, some tenants, especially those in F&B, could find the going tough.

As such, Mr Mak notes that while the Ion Orchard is 50 per cent leased, 'Some could ask if the glass is half full or half empty'.

According to Knight Frank, current prime, first-storey rents are about $49 psf per month on Orchard Road and Mr Mak adds that only big luxury fashion and jewellery stores can afford rents at this level.

Mr Mak does, however, point out that not all retailers need to be location specific. 'Mid- and mass-market brands can go to any of the new malls coming up along Orchard Road. There will also be landlords competing for certain types of tenants.'

Ms Chua adds that retailers will need to weigh the pros and cons of where they choose to locate their shops. 'The positioning of the mall, variety and type of tenants, advertisements, events, promotions, layout and design concept of the mall will help to pull in crowds,' she says, adding: 'Tenants that require high shopper traffic will mainly be the ones who will not mind paying the higher rentals or a percentage of their turnover, if the traffic volume would translate into higher revenue for them.'