Source : The Business Times, March 27, 2008
IT was a stellar year for the Singapore property market in 2007, and auction activity, a barometer of market confidence, did well in tandem by Grace Ng.
Auction sales hit a record $407.43 million in 2007, the highest in eight years and a shade below the figure achieved in 1999 when the market was recovering from the Asian financial crisis.
The record figure was mostly due to a vibrant residential market in the first half of 2007 where sales were dominated by high-end condominiums and old apartments with en bloc potential. The other sectors which had contributed to this remarkable result were shops/shop houses and development sites.
Owners are increasingly turning to auctions to sell their property. In fact, their numbers have been doubling every year since 2005. Last year, the number of properties put up by owners hit a 10-year high, with 810 properties auctioned with a value of $264.7 million. This compares with $129.54 million for 2006.
The transparency of the auction method is the chief reason for its popularity. This assures sellers that they are getting a good price for their properties. Its popularity extends beyond individual owners to companies that are looking to divest or restructure their property portfolio.
The auction market this year is likely to see a 25 per cent drop in value transacted to $300 million, as we expect fewer high-end homes and old apartments with en bloc potential to be put under the hammer.
However, those sectors that have yet to experience sharp price increases are likely to see more activity this year. One such sector would be commercial properties like shophouses. According to Urban Redevelopment Authority numbers, residential prices climbed 31.2 per cent in 2007, while the retail sector only gained 13.2 per cent.
Spotlight on shophouses
Last year, a total of 527 shops/ shophouse units were put up for sale via auction by both individual owners and companies. A total of $78.1 million worth of such units were sold under the hammer, against just $28.75 million in 2006. That’s a jump of 172 per cent!
The sale value of shops/shop houses is expected to moderate to $50 million this year due to the cautious mood in the market.
With the US sub-prime debacle crimping sentiment in the property market this year, particularly the lacklustre residential sector, savvy investors could consider turning their attention to strata titled shops, private shophouses or HDB shops.
Shophouses, like other types of property, are assets that can hedge against inflation, enabling investors to benefit when the capital value appreciates in times of rising prices. Additionally, for owner occupiers, the shop/shophouse acts as a hedge against rental increases. By purchasing a unit, owner occupiers are typically converting their monthly rent to mortgage payments, which could turn out to be much lower.
Auctions are a good avenue to source for shops/shophouses that are affordable, strategically located, limited in supply and have attractive yield or en bloc potential.
Many strata titled shops were successfully transacted at auctions at affordable prices, many of them below $500,000. Such a price range is considered a bargain, particularly when some of them are located in the heart of town or next to future MRT stations.
For instance, two strata titled shops at Excelsior Hotel and Shopping Centre located at Coleman Street, near the City Hall MRT station, were sold for $318,000 and $340,000, respectively. Additionally, several shop units at Grandlink Square, near the future Paya Lebar MRT interchange, were sold at prices ranging from $51,000 to $226,000.
There are also many attractive picks among HDB shophouses put up for sale by mortgagees at auctions and such properties are usually attractively priced. These shophouses consist of shop space on the ground level and living quarters, often a three-room flat, on the upper level. Considering the high cash over valuation done on some HDB flats, HDB shophouses priced between $600,000 and $700,000 are some of the attractive options appearing at auctions. Some successful transactions include HDB shophouses located in Chai Chee and Bedok North Avenue 1, which were sold for $640,000 and $700,000, respectively.
Investors and business owners see shops and shophouses as alternative office space, which is facing a current supply crunch. Shophouse units located near or within the CBD are in high demand and they are usually near MRT stations. For instance, a three-storey shophouse unit with dual frontage at Stanley Street was sold for $4.21 million last year. Similar properties include shophouse units located at Outram Park and South Bridge Road, which were successfully auctioned off at $2.73 million and $2.6 million, respectively.
HDB shops/shophouses located in high pedestrian traffic areas like the town centre, MRT station or bus interchange are in demand and can fetch record prices at auctions. For example, a shop unit at Heartland Mall in Hougang was sold for $8.5 million, while another shophouse at Upper Changi Road, which is situated beside an upcoming mall and near the Bedok bus interchange and MRT, was sold for $7 million at an auction last year.
Similarly, an HDB shop at North Bridge Road was sold for $528,000 last year, while a shop at Crawford Lane located opposite a future hotel at Victoria Street, was sold for $495,000 this year.
Limited supply
There are a limited number of strata titled shop units available in the market as the majority of shopping centres in Singapore are owned by Reits like CapitaMall Trust, Frasers Centrepoint Trust and Macquarie MEAG Prime Reit.
For new developments like the Icon at Tanjong Pagar, the developer would usually hold on to the commercial component for lease instead of selling the individual units.
Conservation shophouses are popular with investors due to their limited supply and architectural characteristics. Last year, a three-storey conservation shophouse located in the Kampong Glam conservation area and near the MRT station was sold for $2 million. Another shophouse at Prinsep Street, opposite the future Singapore Art School, was sold at an auction for $3.78 million.
Attractive yield
One compelling reason why investors are keen on shops/shophouse units is because such properties can generate a yield of 4-6 per cent. The yield attained from such investment exceeds the paltry interest rate of fixed deposits which is currently under 2 per cent.
En bloc potential
Shop/shophouse units that are located within old developments usually attract keen bidding at auctions. Investors would have explored the possibility of such old developments being sold collectively in future. Last year, two shop units in Katong Plaza, which had en bloc potential, were successfully auctioned for $225,000 and $325,000, respectively.
Grace Ng is deputy managing director and auctioneer at Colliers International
Friday, March 28, 2008
S-Reits Alright For Long-Term Gains
Source : The Business Times, March 27, 2008
Investors with capital to deploy should take advantage of the high yields on offer, and get paid by waiting, says MARK EBBINGHAUS
OVER the past few years one of the greatest drivers behind the positive performances of the region’s market was liquidity. Now, following a change in the financial environment, which began around August 2007, the negative market performance that the markets are experiencing is being driven, in part, by illiquidity. As a result there has been an increase in volatility in Asia’s equity markets, with the S-Reit market being one of the sub-sectors significantly affected by these changes. And despite the volatility lasting for over seven months, there is still a lack of clarity as to when this is likely to abate.
In the first seven months of 2007 there were net capital inflows in excess of US$20 billion into Asia’s equity markets but this abruptly ended towards the end of July, with a significant reversal of market liquidity. Since then we have seen over US$40 billion of net outflows from Asia’s markets, after a period of near record equity issuance. As a result, liquidity has been sucked out of the system and markets have become extremely volatile.
We are now in an environment where volatility, as measured by the volatility index (VIX), is at record highs. In addition, risk aversion is also running at high levels, as measured by the emerging markets bond index (EMBI) plus sovereign spread.
From the data, it’s clear that the market is firmly in bearish territory, having moved rapidly from the previous years’ bullish sentiment. Much of what has occurred has been out of the region’s control, being driven instead by global capital markets and the significant re-pricing of risk. However, the knock-on effect has been that those markets perceived as being riskier, including the S-Reit market, have suffered a lot over the past seven months.
Not since the early days in the development of the S-Reit market, which was established in July 2002, have we seen distribution per share (DPS) yield spreads widen to over 350 basis points, which compares to the market’s peak in July last year where the spread was closer to 100 basis points. For some individual S-Reits we have seen the spread blow out far wider, with many S-Reits trading at a high single digit/low double digit DPS yield compared to the long bond in the mid two per cent range. That’s among the widest spreads in the world.
‘Institutional investors are sitting on near-record cash weighting and at some point we will see a tipping point where the global financial malaise washes through the system and investors regain confidence to deploy capital. When this occurs, we are likely to see a run of funds flow into the region and with it a significant rally in the markets.’
The perplexing issue for many is that we have not seen a deterioration in earnings quality of the mainstream S-Reit sector. What we have seen, however, is significant price volatility. It’s probably fair to say that the sector is not currently being driven by fundamentals but more by momentum. It’s probably also fair to say that momentum was largely what led the sector to all-time highs last year and that the sector probably ran too hard too fast. Today, to some extent, the S-Reit sector is paying the price for the excess in-flow of money in prior periods, combined with more discriminating investor appetite that is looking for value in many places, but wary of the illiquidity induced volatility.
Looking at the global Reit marketplace it really depends on what your reference point is in assessing value opportunities and justifying activity or inactivity alike. If your benchmark reference point is discount to net asset value (NAV) or absolute earnings yield then the S-Reits do not look particularly cheap. However, if you look at the distribution yield spread to the long bond or notional risk free rate, then the S-Reits look like some of the best value opportunities in the world, particularly when you combine this with base earnings stability and strong earnings growth prospects. When the market was attracting a lot of attention last year, investors were willing to factor in yield, organic growth and, importantly, acquisitive growth into their required rate of total return from an S-Reit investment. S-Reits were required to have an identified asset pipeline, if you didn’t you would not get credit for acquisitive growth. For those with a pipeline the market drove down the DPS yield in part due to the high earnings accretive effects of acquisitions. This resulted in an increase in the accretion of the growth.
Today’s pipeline is not viewed as positively by investors, mainly because it’s all about funding and if you have a pipeline the first thing an investor will ask is how you are going to fund your acquisitions. So, to some extent, S-Reit investors’ total return expectations have not changed significantly in the last year, but today the requirement is to deliver it through yield and organic growth only, excluding acquisitive growth. As such, the yield has had to effectively compensate for this, which has driven this metric up to near all-time highs, despite the risk-free and debt rates actually moving in the other direction, widening spreads on both counts.
This brings us to debt. Many investors feel - and there is sympathy with this line of thought - that in some instances capital management practices in the sector have been behind the pace in a rapidly changing global credit market environment. We have seen gearing levels gradually rise from the low 20 per cent range to over 30 per cent and we have seen debt providers become a lot more cautious in terms of refinancing and extending debt facilities.
Reit investors have witnessed real estate in the western world, notably the US, UK and Europe, revalued downwards, in some cases significantly, resulting in gearing levels increasing beyond what could be considered prudent and in some situations this has been deadly.
In a market where investors often shoot first and ask questions later capital management has been a major focus and another trigger issue significantly influencing investors’ trading activity. In short, illiquidity and capital management have combined to be major influences on the performance of the S-Reit sector, currently being driven - at least in trading activity - by generally non-traditional Reit investors, exacerbating volatility levels.
In the main, the fundamentals of the S-Reit sector are in reasonably good shape. There is very limited earnings risk and there are promising organic earnings growth prospects. The demand and supply metrics in the physical asset market remain generally sound and there are unlikely to be any significant shocks to the system from that quarter. It’s generally not so much about earnings but the pricing is being driven by illiquidity and increased global risk premia.
Having said that, there are a number of messages that institutional investors are sending to S-Reits, with the bottom line being: ‘If you do not listen to us we will not buy!’
Institutional investors are sitting on near record cash weighting and at some point we will see a tipping point where the global financial malaise washes through the system and investors regain confidence to deploy capital. When this occurs we are likely to see a run of funds flow into the region and with it a significant rally in the markets.
In the meantime, for those with something longer than a monthly investment horizon and wishing to deploy capital, buy S-Reits, take the high yields on offer and effectively get paid to wait for the rally.
At the end of the day, quality investments are likely to yield the right results over the longer term. However, in the case of S-Reits, both asset and management quality are paramount and getting this right from an investor’s point of view is critical.
Mark Ebbinghaus is managing director, head of real estate, lodging and leisure, Asia, UBS Investment Banking Department
Investors with capital to deploy should take advantage of the high yields on offer, and get paid by waiting, says MARK EBBINGHAUS
OVER the past few years one of the greatest drivers behind the positive performances of the region’s market was liquidity. Now, following a change in the financial environment, which began around August 2007, the negative market performance that the markets are experiencing is being driven, in part, by illiquidity. As a result there has been an increase in volatility in Asia’s equity markets, with the S-Reit market being one of the sub-sectors significantly affected by these changes. And despite the volatility lasting for over seven months, there is still a lack of clarity as to when this is likely to abate.
In the first seven months of 2007 there were net capital inflows in excess of US$20 billion into Asia’s equity markets but this abruptly ended towards the end of July, with a significant reversal of market liquidity. Since then we have seen over US$40 billion of net outflows from Asia’s markets, after a period of near record equity issuance. As a result, liquidity has been sucked out of the system and markets have become extremely volatile.
We are now in an environment where volatility, as measured by the volatility index (VIX), is at record highs. In addition, risk aversion is also running at high levels, as measured by the emerging markets bond index (EMBI) plus sovereign spread.
From the data, it’s clear that the market is firmly in bearish territory, having moved rapidly from the previous years’ bullish sentiment. Much of what has occurred has been out of the region’s control, being driven instead by global capital markets and the significant re-pricing of risk. However, the knock-on effect has been that those markets perceived as being riskier, including the S-Reit market, have suffered a lot over the past seven months.
Not since the early days in the development of the S-Reit market, which was established in July 2002, have we seen distribution per share (DPS) yield spreads widen to over 350 basis points, which compares to the market’s peak in July last year where the spread was closer to 100 basis points. For some individual S-Reits we have seen the spread blow out far wider, with many S-Reits trading at a high single digit/low double digit DPS yield compared to the long bond in the mid two per cent range. That’s among the widest spreads in the world.
‘Institutional investors are sitting on near-record cash weighting and at some point we will see a tipping point where the global financial malaise washes through the system and investors regain confidence to deploy capital. When this occurs, we are likely to see a run of funds flow into the region and with it a significant rally in the markets.’
The perplexing issue for many is that we have not seen a deterioration in earnings quality of the mainstream S-Reit sector. What we have seen, however, is significant price volatility. It’s probably fair to say that the sector is not currently being driven by fundamentals but more by momentum. It’s probably also fair to say that momentum was largely what led the sector to all-time highs last year and that the sector probably ran too hard too fast. Today, to some extent, the S-Reit sector is paying the price for the excess in-flow of money in prior periods, combined with more discriminating investor appetite that is looking for value in many places, but wary of the illiquidity induced volatility.
Looking at the global Reit marketplace it really depends on what your reference point is in assessing value opportunities and justifying activity or inactivity alike. If your benchmark reference point is discount to net asset value (NAV) or absolute earnings yield then the S-Reits do not look particularly cheap. However, if you look at the distribution yield spread to the long bond or notional risk free rate, then the S-Reits look like some of the best value opportunities in the world, particularly when you combine this with base earnings stability and strong earnings growth prospects. When the market was attracting a lot of attention last year, investors were willing to factor in yield, organic growth and, importantly, acquisitive growth into their required rate of total return from an S-Reit investment. S-Reits were required to have an identified asset pipeline, if you didn’t you would not get credit for acquisitive growth. For those with a pipeline the market drove down the DPS yield in part due to the high earnings accretive effects of acquisitions. This resulted in an increase in the accretion of the growth.
Today’s pipeline is not viewed as positively by investors, mainly because it’s all about funding and if you have a pipeline the first thing an investor will ask is how you are going to fund your acquisitions. So, to some extent, S-Reit investors’ total return expectations have not changed significantly in the last year, but today the requirement is to deliver it through yield and organic growth only, excluding acquisitive growth. As such, the yield has had to effectively compensate for this, which has driven this metric up to near all-time highs, despite the risk-free and debt rates actually moving in the other direction, widening spreads on both counts.
This brings us to debt. Many investors feel - and there is sympathy with this line of thought - that in some instances capital management practices in the sector have been behind the pace in a rapidly changing global credit market environment. We have seen gearing levels gradually rise from the low 20 per cent range to over 30 per cent and we have seen debt providers become a lot more cautious in terms of refinancing and extending debt facilities.
Reit investors have witnessed real estate in the western world, notably the US, UK and Europe, revalued downwards, in some cases significantly, resulting in gearing levels increasing beyond what could be considered prudent and in some situations this has been deadly.
In a market where investors often shoot first and ask questions later capital management has been a major focus and another trigger issue significantly influencing investors’ trading activity. In short, illiquidity and capital management have combined to be major influences on the performance of the S-Reit sector, currently being driven - at least in trading activity - by generally non-traditional Reit investors, exacerbating volatility levels.
In the main, the fundamentals of the S-Reit sector are in reasonably good shape. There is very limited earnings risk and there are promising organic earnings growth prospects. The demand and supply metrics in the physical asset market remain generally sound and there are unlikely to be any significant shocks to the system from that quarter. It’s generally not so much about earnings but the pricing is being driven by illiquidity and increased global risk premia.
Having said that, there are a number of messages that institutional investors are sending to S-Reits, with the bottom line being: ‘If you do not listen to us we will not buy!’
Institutional investors are sitting on near record cash weighting and at some point we will see a tipping point where the global financial malaise washes through the system and investors regain confidence to deploy capital. When this occurs we are likely to see a run of funds flow into the region and with it a significant rally in the markets.
In the meantime, for those with something longer than a monthly investment horizon and wishing to deploy capital, buy S-Reits, take the high yields on offer and effectively get paid to wait for the rally.
At the end of the day, quality investments are likely to yield the right results over the longer term. However, in the case of S-Reits, both asset and management quality are paramount and getting this right from an investor’s point of view is critical.
Mark Ebbinghaus is managing director, head of real estate, lodging and leisure, Asia, UBS Investment Banking Department
Rising Demand For Built-To-Suit Space
Source : The Business Times, March 27, 2008
With CBD office rentals continuing to increase, companies are looking for cheaper alternatives, write CHRIS ARCHIBOLD and TAHLIL KHAN
WHILE demand for central business district (CBD) office space remains very strong, some significant trends have emerged in the way a number of multinational companies view options in terms of location and type of premises for future occupation.
The two most active industries looking at BTS schemes are financial institutions and IT companies. A lot of the interest has centred on Changi Business Park as one of the key advantages, besides the availability of greenfield sites, is the direct land allocation process.
This has come about from Singapore’s drive towards a knowledge economy as well as current market dynamics. Historically, the Singapore economy was largely based on trading and labour-intensive manufacturing industries. In the 1990s, there was a significant drive towards the information technology (IT) sector which grew as a result of the dotcom era. During the late 1990s and early 2000s, there was a concerted effort to encourage R&D activity and more recently, the government has been encouraging various sectors. That notably includes positioning Singapore as a regional financial hub.
The growth of the financial services sector in Singapore has had a marked effect on the economy and on the accommodation demanded by global financial players. Many of these large financial houses have now reached a critical mass whereby they are looking to split their operations into both front and back offices.
The Singapore office market bottomed out in the second half of 2004 and saw a rental rise of 23 per cent in 2005 followed by 63 per cent in 2006 and a further 67 per cent in 2007 with fourth quarter Grade A CBD rents at $16 per sq ft a month. This dramatic increase in rents has been fuelled by lack of supply and unprecedented levels of demand from many MNCs, most notably from the financial sector.
The high-tech sector has also seen increases in rents of 12.5 per cent, 11 per cent and 97 per cent in 2005, 2006 and 2007 respectively. While 2007 saw a virtual doubling of high-tech rents, the increases from the bottom of the market till today have been nowhere near as dramatic as the office market which has trebled. We have a scenario today where there is a significant gap between office and high-tech rents.
The gap between average CBD core office rent and rents for high-tech space has widened from 140 per cent in the second half of 2004 to about 200 per cent in the fourth quarter of 2007. This is because of the higher increase in CBD core office rentals as compared to high-tech rents during this period.
With CBD core office rentals continuing to increase, companies began looking for cheaper alternatives. Some major financial institutions have chosen to relocate their backroom operations to high-tech space, thus pushing up high-tech rentals. The strong demand for such space at the tail end of 2007 and beginning of 2008 has resulted in high-tech rentals increasing at a faster rate than CBD core and decentralised area office rentals, narrowing the rental gap between office and high-tech space.
Nevertheless, compared to office rents, high-tech rents are more compelling than ever before from an occupational cost perspective. Given that all MNCs are looking to lower occupational costs, and with a disparity of around $11 - $13 psf per month between core CBD rents and high-tech rents, there is an opportunity to make substantial savings which makes a compelling case for corporate real estate managers (CRE) and chief financial officers (CFOs).
Given the above, we are witnessing unprecedented growth in the demand for high-tech business park space from both traditional occupiers and financial institutions. There are a number of reasons for this recent phenomena, including the following:-
# Cost savings,
# Consolidation of operations,
# Critical mass,
# Diversification of locations (business continuity).
The current supply of high-tech space is extremely limited and hence the emerging trend for forward thinking MNCs is to enter into built-to-suit (BTS) projects. This can be either owner-occupied by the MNC or leased from a BTS developer on a long-term basis. It is worth noting that for a BTS project to be financially viable (for both occupiers and the developers) they generally have to be of a certain scale, approximately 100,000 sq ft and above.
The major considerations for MNCs looking at BTS projects in decentralised locations are as follows:
# Good corporate image with modern office-like facade and landscaping,
# Strong supporting amenities such as food courts and ancillary retail,
# Competitive rentals,
# Efficient transportation systems including access to MRT, buses and taxis,
# Greenmark certification as a minimum - many MNCs now have corporate mandates that dictate Corporate Social Responsibility (CSR),
# Ability to create a quality working environment. Our surveys on the workplace environment have demonstrated that a quality working environment increases productivity. Lower rents per sq ft enable MNCs to dedicate more area for staff facilities and welfare. In the main, the areas that are considered by MNCs for BTS projects fall into four preferred locations: Changi Business Park (CBP), Jurong East including International Business Park (IBP), One-north and Science Park.
Market talk indicates there are likely to be other locations which may be designated as high-tech locations such as Paya Lebar. The reason the above locations are favoured is the current availability of quality sites that meet MNCs’ requirements. Recently, the 15-year leasehold transitional office sites (such as those in Newton, Mountbatten and Tampines) have provided occupiers with attractive propositions in terms of affordable rents in good locations which will facilitate BTS developments. The BTS trend has been borne out in a number of recent well-publicised acquisitions. In terms of the financial sector, these include acquisitions of substantial back office BTS facilities by DBS, Citibank and Standard Chartered Bank. OCBC is also rumoured to be in discussions on a BTS scheme in Changi Business Park. Recent BTS acquisitions by non-financial services companies include Tolaram Group in IBP and IMC Shipping in Changi Business Park.
There are numerous other corporates that are in discussions for BTS projects that will go live in 2008. Jones Lang LaSalle (JLL) is currently advising a number of large occupiers in various industries on their long-term strategies for Singapore. Table 2 details the industry profile of the occupiers that we are currently advising with regards to the potential acquisition of BTS facilities.
An interesting point to note is that based on JLL’s current instructions, the two most active industries looking at BTS schemes are financial institutions and IT companies. A lot of the interest has centred on Changi Business Park as one of the key advantages, besides the availability of greenfield sites, is the direct land allocation process which provides corporates with line of sight in terms of costs and certainty in terms of timing.
Given the current and increasing future importance of CSR, BTS facilities are giving major corporates an opportunity to reduce their environmental impact and impress shareholders with their drive to be good corporate citizens. Almost every recent commitment to a BTS project has incorporated at least the minimum level of greenmark certification. Some of the occupiers are aiming to achieve Gold Plus or even Platinum levels of certification.
Our house view is that Singapore will see a continuing trend of BTS facilities over the next couple of years, with the likely takers of BTS projects being full relocations (including front office operations) for the IT, consumer products and manufacturing industries and back office operations for financial institutions.
This will continue to be driven by current influencing factors, ie, rents and the lack of supply. In the case of financial institutions, this will also be driven by the fact that many now have the critical mass in Singapore required for a split front and back office location.
The impact of these BTS schemes on the office market and high-tech market remains to be seen and is very much dependent on the scale of BTS commitments over the next 12-24 months. Equally, this is also dependent on the percentage of space that is taken up as expansion requirements compared to take-up that is pure relocation from current buildings.
Chris Archibold is regional director, head of markets, Jones Lang LaSalle; and Tahlil Khan is associate director, head of industrial, Jones Lang LaSalle
With CBD office rentals continuing to increase, companies are looking for cheaper alternatives, write CHRIS ARCHIBOLD and TAHLIL KHAN
WHILE demand for central business district (CBD) office space remains very strong, some significant trends have emerged in the way a number of multinational companies view options in terms of location and type of premises for future occupation.
The two most active industries looking at BTS schemes are financial institutions and IT companies. A lot of the interest has centred on Changi Business Park as one of the key advantages, besides the availability of greenfield sites, is the direct land allocation process.
This has come about from Singapore’s drive towards a knowledge economy as well as current market dynamics. Historically, the Singapore economy was largely based on trading and labour-intensive manufacturing industries. In the 1990s, there was a significant drive towards the information technology (IT) sector which grew as a result of the dotcom era. During the late 1990s and early 2000s, there was a concerted effort to encourage R&D activity and more recently, the government has been encouraging various sectors. That notably includes positioning Singapore as a regional financial hub.
The growth of the financial services sector in Singapore has had a marked effect on the economy and on the accommodation demanded by global financial players. Many of these large financial houses have now reached a critical mass whereby they are looking to split their operations into both front and back offices.
The Singapore office market bottomed out in the second half of 2004 and saw a rental rise of 23 per cent in 2005 followed by 63 per cent in 2006 and a further 67 per cent in 2007 with fourth quarter Grade A CBD rents at $16 per sq ft a month. This dramatic increase in rents has been fuelled by lack of supply and unprecedented levels of demand from many MNCs, most notably from the financial sector.
The high-tech sector has also seen increases in rents of 12.5 per cent, 11 per cent and 97 per cent in 2005, 2006 and 2007 respectively. While 2007 saw a virtual doubling of high-tech rents, the increases from the bottom of the market till today have been nowhere near as dramatic as the office market which has trebled. We have a scenario today where there is a significant gap between office and high-tech rents.
The gap between average CBD core office rent and rents for high-tech space has widened from 140 per cent in the second half of 2004 to about 200 per cent in the fourth quarter of 2007. This is because of the higher increase in CBD core office rentals as compared to high-tech rents during this period.
With CBD core office rentals continuing to increase, companies began looking for cheaper alternatives. Some major financial institutions have chosen to relocate their backroom operations to high-tech space, thus pushing up high-tech rentals. The strong demand for such space at the tail end of 2007 and beginning of 2008 has resulted in high-tech rentals increasing at a faster rate than CBD core and decentralised area office rentals, narrowing the rental gap between office and high-tech space.
Nevertheless, compared to office rents, high-tech rents are more compelling than ever before from an occupational cost perspective. Given that all MNCs are looking to lower occupational costs, and with a disparity of around $11 - $13 psf per month between core CBD rents and high-tech rents, there is an opportunity to make substantial savings which makes a compelling case for corporate real estate managers (CRE) and chief financial officers (CFOs).
Given the above, we are witnessing unprecedented growth in the demand for high-tech business park space from both traditional occupiers and financial institutions. There are a number of reasons for this recent phenomena, including the following:-
# Cost savings,
# Consolidation of operations,
# Critical mass,
# Diversification of locations (business continuity).
The current supply of high-tech space is extremely limited and hence the emerging trend for forward thinking MNCs is to enter into built-to-suit (BTS) projects. This can be either owner-occupied by the MNC or leased from a BTS developer on a long-term basis. It is worth noting that for a BTS project to be financially viable (for both occupiers and the developers) they generally have to be of a certain scale, approximately 100,000 sq ft and above.
The major considerations for MNCs looking at BTS projects in decentralised locations are as follows:
# Good corporate image with modern office-like facade and landscaping,
# Strong supporting amenities such as food courts and ancillary retail,
# Competitive rentals,
# Efficient transportation systems including access to MRT, buses and taxis,
# Greenmark certification as a minimum - many MNCs now have corporate mandates that dictate Corporate Social Responsibility (CSR),
# Ability to create a quality working environment. Our surveys on the workplace environment have demonstrated that a quality working environment increases productivity. Lower rents per sq ft enable MNCs to dedicate more area for staff facilities and welfare. In the main, the areas that are considered by MNCs for BTS projects fall into four preferred locations: Changi Business Park (CBP), Jurong East including International Business Park (IBP), One-north and Science Park.
Market talk indicates there are likely to be other locations which may be designated as high-tech locations such as Paya Lebar. The reason the above locations are favoured is the current availability of quality sites that meet MNCs’ requirements. Recently, the 15-year leasehold transitional office sites (such as those in Newton, Mountbatten and Tampines) have provided occupiers with attractive propositions in terms of affordable rents in good locations which will facilitate BTS developments. The BTS trend has been borne out in a number of recent well-publicised acquisitions. In terms of the financial sector, these include acquisitions of substantial back office BTS facilities by DBS, Citibank and Standard Chartered Bank. OCBC is also rumoured to be in discussions on a BTS scheme in Changi Business Park. Recent BTS acquisitions by non-financial services companies include Tolaram Group in IBP and IMC Shipping in Changi Business Park.
There are numerous other corporates that are in discussions for BTS projects that will go live in 2008. Jones Lang LaSalle (JLL) is currently advising a number of large occupiers in various industries on their long-term strategies for Singapore. Table 2 details the industry profile of the occupiers that we are currently advising with regards to the potential acquisition of BTS facilities.
An interesting point to note is that based on JLL’s current instructions, the two most active industries looking at BTS schemes are financial institutions and IT companies. A lot of the interest has centred on Changi Business Park as one of the key advantages, besides the availability of greenfield sites, is the direct land allocation process which provides corporates with line of sight in terms of costs and certainty in terms of timing.
Given the current and increasing future importance of CSR, BTS facilities are giving major corporates an opportunity to reduce their environmental impact and impress shareholders with their drive to be good corporate citizens. Almost every recent commitment to a BTS project has incorporated at least the minimum level of greenmark certification. Some of the occupiers are aiming to achieve Gold Plus or even Platinum levels of certification.
Our house view is that Singapore will see a continuing trend of BTS facilities over the next couple of years, with the likely takers of BTS projects being full relocations (including front office operations) for the IT, consumer products and manufacturing industries and back office operations for financial institutions.
This will continue to be driven by current influencing factors, ie, rents and the lack of supply. In the case of financial institutions, this will also be driven by the fact that many now have the critical mass in Singapore required for a split front and back office location.
The impact of these BTS schemes on the office market and high-tech market remains to be seen and is very much dependent on the scale of BTS commitments over the next 12-24 months. Equally, this is also dependent on the percentage of space that is taken up as expansion requirements compared to take-up that is pure relocation from current buildings.
Chris Archibold is regional director, head of markets, Jones Lang LaSalle; and Tahlil Khan is associate director, head of industrial, Jones Lang LaSalle
Singapore Office Rents Could Peak This Year
Source : The Business Times, March 27, 2008
Tenant resistance will ease pace of rental growth, and office take-up may slow over 5 years, writes MORAY ARMSTRONG
IT WAS a year of new records for the Singapore office market in 2007. Rents were driven to new highs in terms of growth rates - prime rents surged a staggering 92 per cent year on year - and in terms of rent levels that far exceeded previous market cycle peaks. Vacancy rates dropped to unprecedented lows. Meanwhile, the sheer size of many leasing transactions was also on an unparalleled scale.
Shortage of space: Office leasing deals are still happening in spite of worries over the state of the US economy and the financial markets
All in all, a performance that made landlords, developers and property funds fairly content. In contrast, there was growing anxiety in the occupier community over fiercely rising office costs and a critical shortage of available space to accommodate business expansion. This was a consistent theme heard most vocally among various chambers of commerce.
The cries for help had, in fact, already been picked up early in the proceedings and government policy reaction was in full swing. Office development parcels and vacant state buildings were quickly offered to the private sector and 11 government land sale sites were awarded in 2007 (no office sites were awarded the previous year).
The concept of transitional office sites offered on short 15-year ground leases was tested successfully. The lower land premium levels (versus more traditional 99-year leases) reduce the developer’s cost and allow space to be leased out at lower rents. Furthermore, the government identified a number of departments located in the CBD that could potentially relocate to decentralised areas, thereby releasing available office space for the private sector to lease.
So where does the office market go from here? Will Singapore’s office market pitch from critical shortage of space to a glut? What should tenants budget for when leases are due for renewal (and just how do you explain to the head office a fourfold increase in your rent in Singapore when there is financial carnage at home base?) We have set out below a few observations and our thoughts on the market outlook.
Supply
From our tracking we can identify a total confirmed five-year (2008-2012) office supply of 10.18 million sq ft (of which almost two-thirds is attributable to government land sales), the bulk of which will be delivered only after 2010. This supply figure grew dramatically through 2007.
The volume of supply does not in our view appear excessive. An average 2.03 million sq ft per annum is lower than the average 2.21 million sq ft per annum delivered to the market through the 1990s. Bear in mind that the total office stock in Singapore today (70.33 million sq ft) is 186 per cent greater than the total office stock in 1990. Also note that there is a healthy level of occupier pre-commitment in many of the new developments.
Notwithstanding the above, a factor that should be taken into account is the prospect of secondary office stock (availability in existing office buildings) increasing, particularly after 2011 when some major occupiers will move to new CBD developments and some support functions are relocated out of town. Keep an eye out also for potential sub-lease space increasing if there is a greater economic downturn.
As matters currently stand, our sense is that secondary stock is not likely to impact significantly. Bear in mind that most corporates in Singapore right now are desperately short on space and are not holding much ‘fat’ in either their headcount or real estate.
Demand and take-up
Deals are still happening in spite of worries over the state of the US economy and the financial markets. It is noteworthy that the strong tenant interest in decentralisation (Tampines, Changi Business Park, Harbourfront and Mapletree Business City are favoured destinations) has carried forward from last year.
As these commitments are usually financially compelling, it is perhaps unsurprising. Pre-lease momentum for prime buildings may slow in the short term as financial institutions grapple with other issues. We are, however, still actively seeking immediate expansion space for many of our banking clients.
Over the past two years office take-up averaged 2.23 million sq ft. Going forward, we anticipate that take-up may fall back to 1.6 million sq ft on average over the next five years. It is notoriously difficult to accurately call the level of office demand, but in order to build some office occupancy modelling, we have adopted this take-up figure and our assumptions here suggest that overall islandwide occupancy could remain above 90 per cent over the next five years. Hardly over-supply conditions.
Rents
The tightness of availability and excess of unsatisfied occupier demand is likely to drive (selectively) further rental growth. Early last year, we suggested that the pace of rental growth would modify going into 2008. Our preliminary Q1 2008 figures seem to bear this out: Grade A rents advanced 8.7 per cent quarter on quarter to $18.65 per sq ft a month and average prime rents rose 6.7 per cent to $16 psf a month.
While market fundamentals remain highly favourable to landlords, we expect sentiment and a healthy dose of tenant resistance to higher rents will further ease the pace of growth and rents could well peak this year and then stabilise. Greater competition from 2010 onwards suggests that rents could ease downwards. Expect certain landlords with older buildings to moderate rent expectations through this period. Tenant retention will be higher on the agenda.
Policy and land sales
The planners appear to have made a telling contribution over the past couple of years and a welcome increase in supply is now visible. Hard-pressed occupiers already have relief in sight. It may be a timely moment to ease back on priming supply and monitor how the demand side holds up in the light of more cautious times ahead.
Moray Armstrong is executive director (office services), CB Richard Ellis
Tenant resistance will ease pace of rental growth, and office take-up may slow over 5 years, writes MORAY ARMSTRONG
IT WAS a year of new records for the Singapore office market in 2007. Rents were driven to new highs in terms of growth rates - prime rents surged a staggering 92 per cent year on year - and in terms of rent levels that far exceeded previous market cycle peaks. Vacancy rates dropped to unprecedented lows. Meanwhile, the sheer size of many leasing transactions was also on an unparalleled scale.
Shortage of space: Office leasing deals are still happening in spite of worries over the state of the US economy and the financial markets
All in all, a performance that made landlords, developers and property funds fairly content. In contrast, there was growing anxiety in the occupier community over fiercely rising office costs and a critical shortage of available space to accommodate business expansion. This was a consistent theme heard most vocally among various chambers of commerce.
The cries for help had, in fact, already been picked up early in the proceedings and government policy reaction was in full swing. Office development parcels and vacant state buildings were quickly offered to the private sector and 11 government land sale sites were awarded in 2007 (no office sites were awarded the previous year).
The concept of transitional office sites offered on short 15-year ground leases was tested successfully. The lower land premium levels (versus more traditional 99-year leases) reduce the developer’s cost and allow space to be leased out at lower rents. Furthermore, the government identified a number of departments located in the CBD that could potentially relocate to decentralised areas, thereby releasing available office space for the private sector to lease.
So where does the office market go from here? Will Singapore’s office market pitch from critical shortage of space to a glut? What should tenants budget for when leases are due for renewal (and just how do you explain to the head office a fourfold increase in your rent in Singapore when there is financial carnage at home base?) We have set out below a few observations and our thoughts on the market outlook.
Supply
From our tracking we can identify a total confirmed five-year (2008-2012) office supply of 10.18 million sq ft (of which almost two-thirds is attributable to government land sales), the bulk of which will be delivered only after 2010. This supply figure grew dramatically through 2007.
The volume of supply does not in our view appear excessive. An average 2.03 million sq ft per annum is lower than the average 2.21 million sq ft per annum delivered to the market through the 1990s. Bear in mind that the total office stock in Singapore today (70.33 million sq ft) is 186 per cent greater than the total office stock in 1990. Also note that there is a healthy level of occupier pre-commitment in many of the new developments.
Notwithstanding the above, a factor that should be taken into account is the prospect of secondary office stock (availability in existing office buildings) increasing, particularly after 2011 when some major occupiers will move to new CBD developments and some support functions are relocated out of town. Keep an eye out also for potential sub-lease space increasing if there is a greater economic downturn.
As matters currently stand, our sense is that secondary stock is not likely to impact significantly. Bear in mind that most corporates in Singapore right now are desperately short on space and are not holding much ‘fat’ in either their headcount or real estate.
Demand and take-up
Deals are still happening in spite of worries over the state of the US economy and the financial markets. It is noteworthy that the strong tenant interest in decentralisation (Tampines, Changi Business Park, Harbourfront and Mapletree Business City are favoured destinations) has carried forward from last year.
As these commitments are usually financially compelling, it is perhaps unsurprising. Pre-lease momentum for prime buildings may slow in the short term as financial institutions grapple with other issues. We are, however, still actively seeking immediate expansion space for many of our banking clients.
Over the past two years office take-up averaged 2.23 million sq ft. Going forward, we anticipate that take-up may fall back to 1.6 million sq ft on average over the next five years. It is notoriously difficult to accurately call the level of office demand, but in order to build some office occupancy modelling, we have adopted this take-up figure and our assumptions here suggest that overall islandwide occupancy could remain above 90 per cent over the next five years. Hardly over-supply conditions.
Rents
The tightness of availability and excess of unsatisfied occupier demand is likely to drive (selectively) further rental growth. Early last year, we suggested that the pace of rental growth would modify going into 2008. Our preliminary Q1 2008 figures seem to bear this out: Grade A rents advanced 8.7 per cent quarter on quarter to $18.65 per sq ft a month and average prime rents rose 6.7 per cent to $16 psf a month.
While market fundamentals remain highly favourable to landlords, we expect sentiment and a healthy dose of tenant resistance to higher rents will further ease the pace of growth and rents could well peak this year and then stabilise. Greater competition from 2010 onwards suggests that rents could ease downwards. Expect certain landlords with older buildings to moderate rent expectations through this period. Tenant retention will be higher on the agenda.
Policy and land sales
The planners appear to have made a telling contribution over the past couple of years and a welcome increase in supply is now visible. Hard-pressed occupiers already have relief in sight. It may be a timely moment to ease back on priming supply and monitor how the demand side holds up in the light of more cautious times ahead.
Moray Armstrong is executive director (office services), CB Richard Ellis
Singapore Retail Rents Unlikely To Soften
Source : The Business Times, March 27, 2008
But Singapore’s retail operators finding it tough to sustain their businesses, writes SHERENE SNG
SHOPPING seems to be in the psyche of every Singaporean but how will the dynamics in the retail sector - rising rents in particular - reshape our favourite pastime? First, let’s look at the current situation, where retail space has inched up by less than 2 per cent between 2003 and 2007 - from 34.07 million sq ft to 34.64 million sq ft at end-2007.
That has been followed by retail rents around Singapore rising 33.9 per cent in the same period. The island-wide shop space rental index grew from 86.9 in 4Q 2003 to 116.4 in 4Q 2007.
All segments of the retail market saw rental increases. For example, in Orchard Road (central), average monthly gross rental at end-2007 was $45.45 per sq ft per month (psf pm), up from $36.88 psf pm at the beginning of 2005. Average monthly gross rental for suburban areas rose to $28.98 psf pm, up from $26.35 psf pm three years ago.
At these levels, they are still some way behind prime retail rents in Hong Kong ($86.40 psf pm), London ($126.61 psf pm) and New York ($142.77 psf pm).
But prime rents in Kuala Lumpur and Bangkok are lower than in Singapore. The comparisons are made with rents of typical shops in prime retail locations, that is, situated on the ground floor and with good frontage.
What is the impact of rising rentals in shopping malls and how does it impact the shopper?
Retail business cost is largely made up of rent, salaries, training, advertising and promotion (A & P) and for some retailers, backroom support. When rent goes up, and revenue does not rise to a similar extent, retailers will spend less in other areas. Over time, they will cut spending on A & P or training as a way to rein in costs.
For some retailers, especially small and medium-sized companies, profits are reduced to the point that they maintain business for the sake of keeping it going, that is, their shops stay open only as long they can cover costs.
Do retailers feel that they are being squeezed out of the market?
One retailer told me that rents have become too high and many of them are feeling the pinch. If it were not for the fact that he had bought his own shop, things would be hard for him. He felt that many tenants are facing tough times and finding it difficult to sustain their businesses.
It does not help that retailers find it difficult to control other operating costs, including staff salaries and, in the case of food and beverage operators, food costs. In the case of a fashion retailer, staff costs typically make up 10-12 per cent of his sales. This is higher than, say, Hong Kong, where staff costs may range from 8-10 per cent of sales.
By and large, retailers want to be in business for the long term. However, in order to justify investment in business, they need security of tenure. If they are uncertain how long they will be in a particular mall, they would be reluctant to put in a lot of investment. It wouldn’t make sense to train staff and build up a customer base, only to close after three years because of high rents.
All this impacts the consumer. When shopping centres are mainly tenanted to retailers with deep pockets, shopping centres will see a duplication of such tenants and this will result in less variety for shoppers. For retailers that operate on lower margins, for example, electronics, electrical and technology shops, bookshops and large format supermarkets, there is concern that one day they may no longer be found in shopping centres.
To differentiate themselves from the competition, landlords look for new shopping concepts for their malls. Fresh concepts will be a draw, but retailers may be reluctant to bring in new brand names because of the high setup costs involved. Licensees and franchisees have to pay a lot of money for rights to set up new brands in Singapore. High rental costs make retailers think twice about testing new concepts because of the risks involved. One way to get around this would be for landlords to charge such operators lower rent to help them get a foothold in the market. Consumer behaviour is another bugbear of retailers. Singaporeans are viewed as thrifty and with less disposable income. A large number of them enjoy taking budget flights overseas to shop and eat. However, figures from the Singapore Department of Statistics and Knight Frank Research show that retail sales value (excluding motor vehicles) has risen over the last five years to $22.53 billion in 2007. This is an increase of 9.02 per cent from the previous year.
Similar increases for retail sales per square foot of retail space and retail sales per capita have been observed. In 2007, retail sales of $650.50 psf of total retail stock was captured, an increase of 9.57 per cent year-on-year. On a per capita basis, retail sales were $4,814. This means that each square foot of retail space is churning out more sales every year. And each person in Singapore is also generating more sales each year. Along with the yearly increase in tourist arrivals, retails sales will certainly be boosted.
Last year, Singapore successfully secured the rights to host the Formula One race for five years, starting with the inaugural 2008 Formula One SingTel Singapore Grand Prix. This, together with upcoming projects like the two integrated resorts, the rejuvenation of Orchard Road, development of Gardens By The Bay and the Sports Hub will put Singapore on track to achieve the Singapore Tourism Board’s 2015 goal of $30 million in tourism receipts and 17 million visitor arrivals. In 2007, the figures were $13.8 billion and 10.3 visitor arrivals respectively.
Finally, will there be a slowdown in rental increases as retailers hope? Will we face a supply overhang in the next few years?
Between now and 2010, about 6.8 million sq ft of retail space is expected to come on stream. That actually works out to fewer feet of retail space per person than currently: There will be an estimated 6.89 sq ft of retail space per capita of population, down from 7.4 sq ft in 2007.
It appears that the hoped-for softening of rents may not materialise. So what can consumers look forward to? Will they bear the brunt of retailers’ high operating costs should these be passed on to them? That’s the last thing they want.
What shoppers want is to visit malls where the landlord and tenants act together to produce a fresh and vibrant retail mix. Where they can find familiar brands and know that when they come back, these names will still be there. Where shops are well-stocked and sales staff are knowledgeable about the merchandise.
However, retail operators take their lead from their customers. To a certain extent, our shopping habits shape the retail environment. No doubt, Singapore’s market is relatively small but if shoppers send a clear message about the goods and services that they really want and spend their money accordingly, then the spectre of rising rents will not be as disheartening as it appears.
Sherene Sng is head, retail, Knight Frank Pte Ltd.
But Singapore’s retail operators finding it tough to sustain their businesses, writes SHERENE SNG
SHOPPING seems to be in the psyche of every Singaporean but how will the dynamics in the retail sector - rising rents in particular - reshape our favourite pastime? First, let’s look at the current situation, where retail space has inched up by less than 2 per cent between 2003 and 2007 - from 34.07 million sq ft to 34.64 million sq ft at end-2007.
That has been followed by retail rents around Singapore rising 33.9 per cent in the same period. The island-wide shop space rental index grew from 86.9 in 4Q 2003 to 116.4 in 4Q 2007.
All segments of the retail market saw rental increases. For example, in Orchard Road (central), average monthly gross rental at end-2007 was $45.45 per sq ft per month (psf pm), up from $36.88 psf pm at the beginning of 2005. Average monthly gross rental for suburban areas rose to $28.98 psf pm, up from $26.35 psf pm three years ago.
At these levels, they are still some way behind prime retail rents in Hong Kong ($86.40 psf pm), London ($126.61 psf pm) and New York ($142.77 psf pm).
But prime rents in Kuala Lumpur and Bangkok are lower than in Singapore. The comparisons are made with rents of typical shops in prime retail locations, that is, situated on the ground floor and with good frontage.
What is the impact of rising rentals in shopping malls and how does it impact the shopper?
Retail business cost is largely made up of rent, salaries, training, advertising and promotion (A & P) and for some retailers, backroom support. When rent goes up, and revenue does not rise to a similar extent, retailers will spend less in other areas. Over time, they will cut spending on A & P or training as a way to rein in costs.
For some retailers, especially small and medium-sized companies, profits are reduced to the point that they maintain business for the sake of keeping it going, that is, their shops stay open only as long they can cover costs.
Do retailers feel that they are being squeezed out of the market?
One retailer told me that rents have become too high and many of them are feeling the pinch. If it were not for the fact that he had bought his own shop, things would be hard for him. He felt that many tenants are facing tough times and finding it difficult to sustain their businesses.
It does not help that retailers find it difficult to control other operating costs, including staff salaries and, in the case of food and beverage operators, food costs. In the case of a fashion retailer, staff costs typically make up 10-12 per cent of his sales. This is higher than, say, Hong Kong, where staff costs may range from 8-10 per cent of sales.
By and large, retailers want to be in business for the long term. However, in order to justify investment in business, they need security of tenure. If they are uncertain how long they will be in a particular mall, they would be reluctant to put in a lot of investment. It wouldn’t make sense to train staff and build up a customer base, only to close after three years because of high rents.
All this impacts the consumer. When shopping centres are mainly tenanted to retailers with deep pockets, shopping centres will see a duplication of such tenants and this will result in less variety for shoppers. For retailers that operate on lower margins, for example, electronics, electrical and technology shops, bookshops and large format supermarkets, there is concern that one day they may no longer be found in shopping centres.
To differentiate themselves from the competition, landlords look for new shopping concepts for their malls. Fresh concepts will be a draw, but retailers may be reluctant to bring in new brand names because of the high setup costs involved. Licensees and franchisees have to pay a lot of money for rights to set up new brands in Singapore. High rental costs make retailers think twice about testing new concepts because of the risks involved. One way to get around this would be for landlords to charge such operators lower rent to help them get a foothold in the market. Consumer behaviour is another bugbear of retailers. Singaporeans are viewed as thrifty and with less disposable income. A large number of them enjoy taking budget flights overseas to shop and eat. However, figures from the Singapore Department of Statistics and Knight Frank Research show that retail sales value (excluding motor vehicles) has risen over the last five years to $22.53 billion in 2007. This is an increase of 9.02 per cent from the previous year.
Similar increases for retail sales per square foot of retail space and retail sales per capita have been observed. In 2007, retail sales of $650.50 psf of total retail stock was captured, an increase of 9.57 per cent year-on-year. On a per capita basis, retail sales were $4,814. This means that each square foot of retail space is churning out more sales every year. And each person in Singapore is also generating more sales each year. Along with the yearly increase in tourist arrivals, retails sales will certainly be boosted.
Last year, Singapore successfully secured the rights to host the Formula One race for five years, starting with the inaugural 2008 Formula One SingTel Singapore Grand Prix. This, together with upcoming projects like the two integrated resorts, the rejuvenation of Orchard Road, development of Gardens By The Bay and the Sports Hub will put Singapore on track to achieve the Singapore Tourism Board’s 2015 goal of $30 million in tourism receipts and 17 million visitor arrivals. In 2007, the figures were $13.8 billion and 10.3 visitor arrivals respectively.
Finally, will there be a slowdown in rental increases as retailers hope? Will we face a supply overhang in the next few years?
Between now and 2010, about 6.8 million sq ft of retail space is expected to come on stream. That actually works out to fewer feet of retail space per person than currently: There will be an estimated 6.89 sq ft of retail space per capita of population, down from 7.4 sq ft in 2007.
It appears that the hoped-for softening of rents may not materialise. So what can consumers look forward to? Will they bear the brunt of retailers’ high operating costs should these be passed on to them? That’s the last thing they want.
What shoppers want is to visit malls where the landlord and tenants act together to produce a fresh and vibrant retail mix. Where they can find familiar brands and know that when they come back, these names will still be there. Where shops are well-stocked and sales staff are knowledgeable about the merchandise.
However, retail operators take their lead from their customers. To a certain extent, our shopping habits shape the retail environment. No doubt, Singapore’s market is relatively small but if shoppers send a clear message about the goods and services that they really want and spend their money accordingly, then the spectre of rising rents will not be as disheartening as it appears.
Sherene Sng is head, retail, Knight Frank Pte Ltd.
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