Singapore Retail Rental Market
Central vs Suburban
With the successful containment of the spread of Covid-19 in local communities, we saw greater positivity in the retail sector towards the end of 2020. According to Singstat, the decline in retail sales has moderated to -2.5% y-o-y in Nov 2020, from about -9.0% to -12.0% in the third quarter of 2020. Shopper traffic has also recovered to near pre-pandemic levels as Singapore enters Phase 3, due to increased mall capacities and relaxed crowd control measures.
The dampened profitability of businesses weighed down the retail rental market in 2020. The average prime retail rents fell by 8.6% y-o-y in 2020, as tourism halts and safe distancing measures limit foot traffic. A significant proportion of the fall is attributed to the prime CBD retail submarket, while its suburban counterpart managed to hold its ground.
Market research by CBRE projects that in 2021, “the suburban market will continue to be the most resilient; while the fringe and CBD locations, which experienced the highest weakness in 2020, are likely to see a slight recovery as footfall from the working population improves.” Nonetheless, with enforced “work-from-home” arrangements gaining wide acceptance and the uncertainties of international travel, the narrowing of the retail rental gap between central and suburban areas may continue.
A case for Suburban Retail?
The continued efforts by the planning authorities to decentralize the Central Business District through the Multi-Nuclei Model are also expected to exacerbate the dispersion of working population footfall from the Central area. In line with the planned regional and sub-regional centers outside the CBD such as Jurong, One-North, Paya Lebar, and Tampines, retailers have also increasingly established a retail presence in suburban malls to tap into the rich catchment population of HDB townships.
While the pandemic-induced resilience of suburban retail might wear off, the effects of decentralization may be more permanent.