Singapore’s retail scene in 2017 and beyond

Incoming islandwide retail supply significantly slowed in the past two years. According to URA, 2015 and 2016 (first to third quarters) saw approximately 0.6 million and 0.7 million sq ft respectively of net supply islandwide, versus 2.3 million sq ft in 2014.

Major completions were concentrated in the suburban areas with the opening of Compass One in Sengkang and the retail space of Changi Airport Terminal 4. There was no completion on Orchard Road.

Despite the tight supply, average prime retail rents islandwide, tracked by Cushman & Wakefield research, have fallen 4.8% since their peak in 2014. Although the pace of decline moderated in 2016, with a dip of only 2%, there is still no reprieve in sight for 2017 as the sluggish economy will continue to weigh on retail activity and consumer sentiment. In addition, the growing popularity of e-commerce retail has also had a disruptive impact on bricks-and-mortar stores.

Major completions were concentrated in the suburban area, including Compass One in Sengkang (pictured) and the retail space of Changi Airport Terminal 4

Retail trends in 2016

Despite the gloomy economic outlook, there is no lack of new entrants in the retail market, particularly fashion apparel, jewellery and F&B. According to Cushman & Wakefield estimates, close to 30 new entrants set up shop in 2016 — a respectable figure against the backdrop of a challenging retail environment.

Last year saw a flight to quality as retail brands that were still optimistic on expansion took the opportunity to upgrade to larger prime retail spaces vacated by previous tenants in the lower-rent environment. This has led to over 10 flagship stores springing up in various prime locations. The flagship store is a strategic approach towards establishing store-customer relationship, which helps to reinforce and enhance the brand presence and status.

However, it was not quite the top-tier retail brands that were on expansion sprees, with the slow domestic economy and lower tourism spending taking a toll on their topline growth. Rather, it was the fast-fashion consumer brands or those that have not had the opportunity to secure prime retail space in the past that took advantage of the increased vacancy to increase their market presence and share.

Fast-fashion consumer brand Uniqlo took the opportunity to open its new three-level regional flagship store in Orchard. Other flagship stores that opened in the last 12 months included Michael Kors, Victoria’s Secret, Sephora and Triplefit. Decathlon even secured longer leases of up to 15 years to ride the wave of soft rents.

The emergence of character-themed cafés was another trend in 2016, as restaurateurs came out with unique concepts to differentiate themselves in Singapore’s crowded café scene. Home-grown chains The Soup Spoon and Joe & Dough, for example, jumped on the bandwagon by opening the Gudetama Café to take advantage of the character-themed dining trend.

Source: Cushman & Wakefield

Source: Cushman & Wakefield

Chinese brands also made forays into the Singapore retail scene last year. Among the early entrants were Chinese street brand Hotwind and fast-fashion pioneer Urban Revivo. The former opened in 313 Somerset, and the latter, in Raffles City.

We expect more of them to come over in the next 12 months. However, local consumers did not warm up instantly to these labels as the gap in their perception of Chinese brands and how they view successful global brands persists. This has prompted some of the newcomers to think of a different approach to increase market penetration and strengthen brand awareness.

Hence, the soft retail rental market plays into the hands of these Chinese brands as local landlords are now more welcoming of new lifestyle and fashion retailers, given the fairly muted demand and limited lifestyle fashion concepts. Their brand presence in the prime shopping centres in Singapore, a key gateway city for the region, could be seen as an indicator of quality and prestige, which will make it easier for these Chinese brands to expand in domestic and international markets in future.

Outlook

The retail sector is undergoing a structural shift. Access to the consumer’s heart and dollar has migrated online and retailers will have to adopt an omni-channel approach to create an integrated retail experience, thus reducing the need for a larger floor space. High labour costs will continue to wear down retailers, pushing some to relocate to more affordable countries.

Rising vacancies and languishing revenue owing to competition and the rise of e-commerce have led landlords to recognise the need to be more agile and innovative. This is seen in some upcoming developments such as Funan DigitaLife Mall and OUE Downtown 1, where revolutionary retail concepts have been introduced, focusing on experiential retail.

Although there is about one million sq ft of supply coming on stream in 2017, a large chunk of the upcoming supply will be concentrated in the city fringe and suburban areas. There is no new supply in Orchard. We expect rents of prime shopping spaces in Orchard to be relatively resilient, and city fringe rents to be more susceptible during this period of rental volatility.

Regional ranking

According to C&W’s flagship retail publication, Main Streets Across the World, Singapore is a relatively inexpensive place for retailers to increase their exposure, given its gateway status to the Southeast Asia market. Singapore ranked seventh amongst regional peers with an occupancy cost of around one-ninth of that of Causeway Bay in Hong Kong, and one- quarter of that of Tokyo’s Ginza district.

Although retailers continued to stay cautious in their store expansion across Asia- Pacific, international and regional players adopting a longer-term strategy, particularly in Southeast Asia, will continue to eye overseas growth in 2017, given persistent economic headwinds and stiff competition in their respective domestic markets.

Source: Cushman & Wakefield

Christine Li and Goh Jia Ling are head and manager, respectively, of research and consultancy at Cushman & Wakefield Singapore

This article appeared in The Edge Property Pullout, Issue 762 (Jan 16, 2017) of The Edge Singapore.

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