Prime Rents On Orchard Rd Dip 1.9%

Source : The Straits Times, Jan 1, 2009

First slide in 5 years; rents may shrink 5% to 10% more in first half-year: CBRE

PRIME shop rents on Orchard Road have fallen for the first time in five years as consumers tighten their belts and additional supply in the form of new malls starts flooding the market.

Rents could shrink a further 5 to 10 per cent in the first half of this year, said CB Richard Ellis (CBRE) yesterday.

A report by the real estate services firm said monthly prime rents on Orchard Road for the fourth quarter of last year were down 1.9 per cent from the quarter before.

At an average of $36.10 per sq ft, this marks 'the first time that prime Orchard Road rents headed south since the fourth quarter of 2003', said the report.

Compared with the fourth quarter of 2007, rents contracted 0.8 per cent - a stark reversal of the 5.4 per cent growth seen from 2006 to 2007, the report added.

Prime suburban rents for the fourth quarter also slipped for the first time since the second quarter of 1999.

They fell 1 per cent from the third quarter to average $29 per sq ft, and could fall a further 2 to 3 per cent in the first half of this year, said CBRE.

The firm said although retail rents 'were resilient' in previous economic downturns, they are falling this time around because of an influx of supply.

About 6.36 million sq ft of new mall space will emerge by 2012, said CBRE, with 20 to 30 per cent along the Orchard Road belt.

The famed shopping strip will see its first new malls in 10 years with Ion Orchard, 313@Somerset and Orchard Central - and all are due to open this year.

About another 20 per cent of the new space will come from the Marina Bay Sands integrated resort.

Stores that opened in the fourth quarter last year included a 8,000 sq ft Nike Store in Wisma Atria, a 3,200 sq ft Sephora store in Ngee Ann City and a 16,146 sq ft National Geographic store in VivoCity.

NTUC FairPrice opened its third hypermart in Jurong Point's new extension last month, while furniture store Ikea has undergone a $25 million refurbishment to expand its premises by about 40 per cent.

Ms Letty Lee, director of retail services at CBRE, said: 'There is keen leasing interest, especially for unconventional suburban malls like Jurong Point and Ang Mo Kio Hub, because they are in the heartlands and have a ready catchment area.

'But going forward, the increase in supply means the demand for the space will be relatively weaker.'

Although property analysts at CBRE and Knight Frank project a 5 to 15 per cent decline in prime Orchard Road rents this year, Singapore Retail Association (SRA) president Jannie Tay is tipping a 30 to 50 per cent drop.

Dr Tay, an outspoken opponent of rising retail rents, said: 'Rents have risen as much as 80 per cent in the last three years, while business has fallen from 30 to 50 per cent (in the recent downturn).

'Expectations of good times, integrated resorts and high tourism levels are gone. Retailers are negotiating directly with the landlords. At the moment, they need help to stay afloat and to survive.'

Mr Nicholas Mak, director of research and consultancy at Knight Frank, said: 'Fifty per cent is very drastic, and 30 per cent may be the limit.

'Given the economic situation, you can have individual examples of such a drop. It is possible.'

Still, on average, Knight Frank estimates prime retail rents on Orchard Road and at suburban malls will slip 5 to 15 per cent this year.

Ms Sulian Tan-Wijaya, senior director of retail and lifestyle at Savills Singapore, said: 'I'm generally in agreement with CBRE's estimates. But the question mark is how many tenants are going to renew their leases.

'They could drop out, either due to the recession or if they fail to reach agreements with landlords. It's easier to make projections once those figures are known.'

CBRE said: 'Downward pressure on rents is unavoidable. We expect re-negotiations to commence in 2009, after the Chinese New Year festivities.'