Retail vacancy hits lowest point in seven years

• The previous time vacancy rates were this low was Q3 2015
• Food and beverage has picked up pace following easing of restrictions
• More retail stock to come on market across the next two years

In what appears to be a win for one of the most Covid-impacted sectors, retail is seeing vacancy rates fall. While at its lowest level in seven years, one factor could be the prioritisation of occupancy over rental expectations, say experts.

Third consecutive quarter of falling vacancy rates

Retail vacancy rates across Singapore fell for the third consecutive quarter to 7.1%, according to Savills Research’s Q4 2022 Retail Briefing.

That made it a seven-year low, Savills’ said the last time it was this low was Q3 2015, when the vacancy rate was 7.0%.

Driving the tightening of retail vacancy rates island-wide: increased retail sales, higher footfall to shopping malls, and improved visitor levels.

Alan Cheong, Executive Head of Research and Consultancy said: “The industry has weathered the darkest days and there are signs of renewed confidence among retailers and F&B operators in 2023. While economic challenges remain, their resilience, nurtured by the torturous days of the pandemic, may help them overcome the challenges ahead.”

The research found a significant decrease in vacancy rates was recorded in the Outside Central Region, down 1.1 percentage points to 4.0%, with the Central region seeing a vacancy of 8.7%, a fall of 0.6 ppt.

It was noted by Savills’ that:

“The Central Region’s Downtown Core and Orchard Planning Areas’ vacancy rates continued to improve, as travel restrictions eased, leading to increased visitor arrivals in Singapore.

However, the declining vacancy rates may indicate that landlords are prioritizing improving mall occupancy rather than having high rental expectations.”

Savills Research Q4 2022 Retail Briefing

The Urban Redevelopment Authority’s (URA) retail rental index showed the Central Region dropped for the fifth consecutive quarter.

URA retail rental index movement

Source: URA, as cited in Savills Research.

Retail rent contraction in the Central Region has also slowed but is nonetheless down for the third year in a row. Retail rents contracted 2.4% for 2022, with the data showing the declines were much larger in 2021 (6.8%) and 2020 (14.7%).

Prime rents and dining rents grow

The higher end of Singapore’s retail rents also grew, the monthly prime rents were up 2.8% year on year (YoY) for Orchard Area, and up 2.3% for Suburban Area. Quarter on quarter, the famed Orchard Area saw rises of 0.9%, with Suburban Area rising 0.5%.

Food and beverage also continued its recovery following the relaxation of dine-in restrictions, compared to a year ago. Savills Research noted annual revenue growth of 19.5%, compared to 2.7% in 2021.

What’s ahead?

The Little Red Dot is expecting over 700,000 square feet of retail space to be completed across the next two years, with the report forecasting a rise in prime Orchard Road Mall and prime Suburban Mall rents by between 1% to 2%, and 2% to 3% respectively for 2023.

Major projects in the pipeline

Source: Company announcements, URA, Savvils Research & Consultancy.

Marcus Loo, CEO of Savills Singapore, adds: “A new retail landscape is emerging, where brick-and-mortar stores and online experiences are integrated. While it may take some time before we can have a firmer view of how this hybrid retail model will shape the retail mix within malls, it is evident that the industry has weathered the worst of the storm. The focus will now be on adapting to new customer expectations and enhancing the shopping experience both online and offline, as retailers continue to navigate the changing landscape.”