Yahoo Finance Retail rents to feel pressure from vacancies in 2nd Half of 2020
Retail rents will feel pressure from businesses shuttering for good in the second half of 2020 says real estate services agency Cushman & Wakefield
Although most retail businesses in Singapore have resumed operations since 19th June 2020, social distancing measures remain in place after a two-month circuit breaker. Many activity-based tenants such as F&B and health & wellness will not be able to operate at full capacity, which could lead to many businesses shuttering for good. As a result, vacancies in non-prime locations are expected to rise in the second half of 2020.
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Prime retail rents fell across the board in the second quarter of 2020, with Other City Areas rents ($20.88 psf/mo) falling the most at -3.5 per cent quarter-on-quarter.
Orchard ($34.73 psf/mo) and Suburban ($31.56 psf/mo) prime retail rents fell -1.5 per cent and -0.9 per cent quarter-on-quarter respectively.
Christine Li, Cushman & Wakefield‘s Head of Research for Singapore and Southeast Asia said “The entire retail market may see steeper falls in rent in H2 2020 due to higher expected vacancies, lower footfalls, social distancing measures and economic uncertainties due to Covid-19. Currently, many landlords are still maintaining close to pre-Covid asking rents, but as vacancies rise, landlords are expected to become more flexible. However, for popular prime spaces in sought-after suburban malls which are able to maintain high occupancy levels due to their strong tenant profile, rents will be less affected.”
For the whole of 2020, Cushman & Wakefield expects prime retail rents in Orchard and Other City Area to fall by about 10 per cent each and suburban prime retail rents to fall by five per cent.
During the quarter, indoor family attraction Kidzania Singapore announced its closure, four years after operating on Sentosa Island. Popular German-themed Starker Bistro closed all seven of its outlets in Singapore during the quarter too. The market expects more vacant spaces in non-prime locations coming into the market in the second half of 2020 as activity-based tenants are usually located in non-prime spaces within the mall due to their larger size requirements. Furthermore, there could be an overall fall in new demand for retail spaces as some F&B tenants explore delivery options such as cloud kitchens or central kitchens due to current social distancing measures.
Esprit reportedly closed 12 outlets island-wide. It has also been reported that Robinsons will close its Jem outlet in August this year. DFS closed its store at Changi Airport’s 4 terminals, making way for another operator Lotte to take over. Isetan will not renew its lease at Westgate. Nevertheless, some mall operators are able to re-invent space to secure some interesting replacement tenants. JEM was able to re-configure its layout to accommodate IKEA’s first concept store, which will replace the space left by Robinsons. The concept store will open next year.
Mark Lampard, Executive Director, Regional Tenant Representation, said “There is some opportunity for retailers to pursue prime retail spaces during this time as vacancies rise; alternatively, they could also explore suburban prime options for more stability. What is very clear is that retailers have the opportunity to sharpen their e-commerce channels including virtual live sales, given that it is a major mode of transacting business now”.
In another analysis Cushman & Wakefield said first Half (1H) 2020 investment volume registered 45% lower than 1H 2019. The report noted that some opportunistic buys are expected in the second half of 2020 and that this may boost investment.
The 1H 2020 preliminary investment volume amounted to $6.13 billion, 45 per cent lower than the 1H 2019’s volume of $11.24 billion. The second quarter (2Q) 2020 preliminary investment volume amounted to S$3.06 billion, remaining stable from 1Q 2020’s volume of S$3.07 billion. 2Q 2020 saw the return of big ticket commercial deals, resulting in the quarter’s commercial volume surging to S$2.02 billion, more than 10 times that of S$183.4 million in 1Q 2020. This led to the commercial sector accounting for 66 per cent of 2Q’s total volume.
The largest deal of the quarter was Chinese e-commerce giant Alibaba Group buying a 50 per cent stake in AXA Tower in a deal that values the property at S$1.68 billion. Also, Perennial divested its 30 per cent stake in TripleOne Somerset to Shun Tak Holdings for S$155.1 million. Another major commercial deal involved Olayan Group purchasing the retail and banking units of 30 Raffles Place (former Chevron House) for S$315.0 million.
A significant chunk of the 2Q 2020 investment sales was attributed to the merger between Frasers Logistics Trust and Frasers Commercial Trust (via Frasers Logistics Trust acquiring Frasers Commercial Trust), which accounted for S$1.25 billion, or around 41 per cent of the 2Q 2020 total volume.
The hospitality sector remained quiet with no deals, as buyers waited on the side-lines for prices to be revised further downwards. As there is uncertainty over the duration of the crisis and when tourism will return to the prepandemic levels, a significant proportion of hospitality asset owners could be seeking to exit the sector in favour of more stable asset classes, which could lead to some deals in future quarters.
Shaun Poh, Executive Director, Capital Markets, Cushman & Wakefield said “In this post circuit breaker period with the resulting recession, some owners are expected to put up their assets for sale to free up liquidity. Funds with a fixed fund life will also be planning their exits. As past recessions have shown, there are gains to be reaped when investors enter during the period when the market is going through a repricing to find its balance. We are starting to see some market activity around investors sniffing out these opportunities and these might potentially be inked in the later part of the year.”
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