– June 2021

MARKET IN MINUTES Retail Savills Research

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SINGAPORE Marcus Loo CEO, Singapore +65 6415 3893 [email protected] Sulian Claire Executive Director Retail & Lifestyle +65 6415 3880 [email protected]

RESEARCH Rental declines moderate Alan Cheong Occupier demand started to rise in Q1/2021, but the reintroduction of crowd Executive Director Singapore density controls now suggests a more protracted recovery. +65 6415 3641 [email protected] • Food & beverage (F&B) revenue largely declined in Q1/2021 • The more vibrant suburban malls saw a smaller contraction Simon Smith as operators continued to be aff ected by the COVID-19 in Savills monthly prime rents in Suburban Areas of 2.0% Regional Head of pandemic control measures such as dine in capacity QoQ to S$24.00 psf. Research & Consultancy, constraints and restrictions on large-scale events. Asia Pacifi c However, retail sales (excluding motor vehicles) improved • Despite the limited supply pipeline over the next few years, +852 2842 4573 in the quarter, largely due to a lower base in the same the uptick of COVID-19 community cases led the government [email protected] to backtrack from Phase 3 of the pandemic control measures period last year. MCI (P) No. 040/08/2020 to reintroduce Phase 2 (Heightened Alert). While the Company Reg No. 198703410D government has provided some form of support to retailers, it • With the positive net demand of 301,000 sq ft outweighing Savills plc is expected that business conditions will remain challenging Savills is a leading global real the net supply of 108,000 sq ft, the overall vacancy rate estate service provider listed on and rents of malls in both Orchard and Suburban Areas are the London Stock Exchange. The declined for a second consecutive quarter by 0.3 of a forecast to decline by 15% and 10% respectively in 2021. company established in 1855, has a rich heritage with unrivalled percentage point (ppt) to 8.5% in Q1/2021, the lowest since growth. It is a company that leads rather than follows, and now has the onset of the COVID-19 pandemic here in Q2/2020. over 600 offi ces and associates throughout the Americas, Europe, Asia Pacifi c, Africa and the Middle • Despite the lack of tourists, the Orchard Area remains East. This report is for general “ Although it is beginning to informative purposes only. It may resilient with the vacancy rate remaining unchanged at not be published, reproduced or quoted in part or in whole, nor may 11.6%. On the other hand, the vacancy level in Suburban feel a bit like groundhog day it be used as a basis for any contract, prospectus, agreement Areas declined for a third consecutive quarter by 0.8 of a or other document without prior for retailers, vaccinations consent. Whilst every eff ort has ppt to 5.2%, its lowest level since Q1/2016. been made to ensure its accuracy, Savills accepts no liability should get the industry back whatsoever for any direct or • Savills monthly prime rents in Orchard Area fell, albeit at a consequential loss arising from its on track.” use. The content is strictly slower pace, by 3.0% quarter-on-quarter (QoQ) to S$22.80 copyright and reproduction of the whole or part of it in any form is psf, compared to the 7.8% decline registered in Q4/2020. ALAN CHEONG, SAVILLS RESEARCH prohibited without written permission from Savills Research. savills.com.sg/insight-and-opinion/ 1 Retail

MACROECONOMIC OVERVIEW industry here. The net demand of 301,000 GRAPH 1: Retail Sales and F&B Sales Growth, January According to the Ministry of Trade and sq ft outweighed net supply of 108,000 sq ft, 2016 to March 2021 Industry (MTI), with Singapore moving into resulting in the overall retail vacancy rate F&B Sales Retail Sales (excluding motor vehicles) Phase 3, the economy expanded by 1.3% on a declining for a second consecutive quarter by 20% year-on-year (YoY) basis in Q1/2021, a reversal 0.3 of a ppt to 8.5% in Q1/2021. This was the 10% from the 2.4% contraction seen in the last lowest since the COVID-19 pandemic plagued quarter of 2020. This was largely supported by Singapore from Q2/2020. 0% a continued expansion in the manufacturing Across the various localities, retail sector and a moderate decline in the take-up was positive across all areas except -10% construction sector. The positive sentiment the Planning Area where -20% was observed for the retail trade sector as well, net demand was -97,000 sq ft. This was a growing 1.4% YoY in the quarter, a reversal consequence of the proliferation of working- -30%

YOY CHANGE YOY from the 4.7% contraction of Q4/2020. The from-home (WFH) practices and the vacancy -40% turnaround was partly due to the low base rate in the Downtown Core Planning Area rose eff ect last year when there was a plunge in 1.2 ppts QoQ to 11.7% in the quarter, a reversal -50% sales arising from the introduction of safe from the decline of 0.9 of a ppt in Q4/2020 distancing measures. Nevertheless, the F&B (Graph 2). On the other hand, the vacancy -60% sector continued to register a contraction of rate in Orchard Planning Area remained Jul Jul Jul Jul Jul Jan Jan Jan Jan Jan Jan Mar Oct Oct Oct Oct Oct Apr Apr Apr Apr Apr 9.4% YoY, albeit an improvement from the unchanged at 11.6% during the quarter after a 2016 2017 2018 2019 2020 21 19.0% contraction of the previous quarter, QoQ increase of 2.5 ppts in Q4/2020, signaling Source Singapore Department of Statistics, Savills Research & Consultancy aff ected by the safe distancing measures. that a base is forming in the prime shopping F&B revenue1 largely declined over belt despite the lack of tourists. While there Q1/2021 (except for a rise in March 2021 due were retailers who closed their stores on to the lower base last year), with lower sales Orchard Road, it was observed that there GRAPH 2: Vacancy Rates, 2011 to Q1/2021 observed across all segments (Graph 1). Food are still retailers taking up space in the area. caterers recorded the largest decline in the China’s Zall Bookstore opened its fi rst overseas Island-wide Downtown Core Orchard Suburban Area quarter as they continue to be aff ected by store at while Paris Baguette 14% restrictions on dine in numbers and large- launched its fi rst duplex store in Singapore spanning 3,200 sq ft at 313@Somerset. This 12% scale events. The other segments including restaurants, cafes, food courts & other eating shows that despite the ongoing pandemic and 10% places, and fast-food outlets also contracted border closures, retailers remain confi dent in due to capacity constraints arising from safe the outlook of this tourist shopping belt and 8% distancing measures and anaemic visitor believe that once travel restrictions are eased arrivals. In Q1/2021, international visitor tourist spending will quickly revive. We also 6% arrivals totaled 68,679, a 97.4% plunge YoY. note that there have been some substitutive On a month-on-month (MoM) basis, visitor eff ects as more locals have been patronizing 4% arrival numbers in March 2021 hit 27,174, the the Orchard Road Area. highest since April 2020 when the COVID-19 As companies have maintained their policy 2% situation worsened, and travel restrictions of allowing staff to WFH, retail malls in 0% were imposed. the Suburban Areas performed better. This On the other hand, retail sales (excluding propped up retail demand and the average motor vehicles)2 improved in the quarter, vacancy rate fell for a third consecutive again, due to the lower base in the same quarter by 0.8 of a ppt from 6% in Q4/2020 to Source URA, Savills Research & Consultancy 5.2% in Q1/2021. This was also the lowest level period last year. At a more granular level, since Q1/2016 when the rate stood at 4.4%. In there was an increase in the sales volume addition, malls in Suburban Areas have a higher of discretionary goods such as watches & GRAPH 3: Prime Retail Rents, 2011 to Q1/2021 exposure to essential services which meet the jewellery and wearing apparel & footwear. In needs of locals such as mid-level F&B outlets, addition, sales of goods such as computers & Orchard Area Suburban Area supermarkets and pharmacies than malls in the 38 telecommunications equipment, recreational Central Region. goods, furniture & household equipment, as 36 Notwithstanding a slight improvement in well as supermarkets & hypermarkets also the retail market occupier statistics, overall 34 expanded, probably due to more companies conditions remain challenging, resulting in 32 adopting hybrid work arrangements. rents falling further. In Q1/2021, the Urban Redevelopment Authority’s (URA) retail rental 30 VACANCY RATES FALL AMID index for the Central Region fell for a fi fth 28 POSITIVE SENTIMENT consecutive quarter by 4.4% QoQ, a smaller

S$ PSF PM The implementation of the vaccination decline than the 5.2% in Q4/2020. Savills 26 program was rolled out in conjunction monthly prime rents3 in Orchard Area also 24 with Phase 3 of economic reopening. This fell by a moderate 3.0% QoQ to S$22.80 psf generated positive sentiment on many fronts in the quarter, compared to the 7.8% decline 22 and supported occupier demand despite the in the previous quarter (Graph 3). Due to the 20 signifi cant challenges confronting the retail stronger demand enjoyed by suburban malls, retail rents in the Suburban Areas fell by a 1 Food & Beverage Services Index in Chained Volume Terms, Monthly. Updated as at 28 April 2021. slightly smaller 2.0% QoQ to S$24.00 psf. 2 Retail Sales Index in Chained Volume Terms, Monthly Source Savills Research & Consultancy (exclude any online orders which are sent from foreign 3 Savills estimated rent for a 1,000-sq ft prime ground fl oor addresses). Updated as at 28 April 2021. unit let to a fashion retailer.

savills.com.sg/insight-and-opinion/ 2 Retail

CLOSURE OF RETAIL OUTLETS AS THE quickly despite the presence of the pandemic. This 475,000 sq ft of retail net lettable area (NLA) slated PANDEMIC CONTINUES could indicate retailers’ confi dence in Singapore’s to be completed over the remaining three quarters The COVID-19 pandemic has led to the closure retail market in the long term. For instance, when of the year. The supply pipeline in the next few years of many stores, both large and small. These have Robinsons, one of the major tenants at Raffl es City is also relatively limited with the fi ve-year (2021 to included retailers such as Robinsons, Topshop, Shopping Centre and the anchor tenant at The 2025) annual average coming in at 475,000 sq ft. Esprit and Sportslink, which have been in the Heeren, announced in October 2020 that it intended This is signifi cantly lower than the fi ve-year (2016 market for decades. Although Singapore progressed to cease operations, it was subsequently reported to 2020) annual average supply of 1.3 million sq ft. to Phase 3 at the end of 2020, some retailers have in January 2021 that electrical, IT and furniture With the construction industry affl icted by labour already been too badly hit by the earlier measures retailer Courts will take over the space and open supply issues, construction delays may spill over and succumbed to the challenging conditions. Local its new fl agship store. This will span 189,000 sq to 2021 and some upcoming completions may be retailer Naiise closed its last physical store at Jewel ft across six storeys and was expected to open delayed further to 2022. Changi Airport after shutting its other outlet at Paya Q1/2022. In the same month, while Robinsons exited Lebar Quarter and withdrawing as the operator at from three levels at Raffl es City, two levels of this OUTLOOK Design Orchard’s retail showcase for homegrown vacated space spanning 57,000 sq ft were taken According to MTI, the external economic conditions designers two years ahead of its original term. The up by a partnership between BHG Singapore and have been recovering since February 2021. The COVID-19 pandemic was cited as the reason for its Raffl es City Singapore with a new concept store performance of Singapore’s economy also got off to liquidation. Similarly, Singapore-based Dimbulah named One Assembly, providing a wide range of a good start in the fi rst quarter this year, surpassing beauty, fashion, home and living, and experiential Coff ee ceased operations at three of its outlets, expectations. Notwithstanding the recurrence of off erings. The remaining level formerly occupied by namely Raffl es Hospital, Sofi tel So and 18 Robinson infections and the emergence of more transmissible Robinsons was taken up by Lazada, which launched Road. With offi ce workers WFH since Q2/2020 and strains of the virus, MTI has maintained a GDP a 10,000 sq ft pop-up store which showcases home the backsliding to similar arrangements in Q2/2021, growth forecast for 2021 at 4.0% to 6.0%. The furnishings and smart home products. Despite the the F&B sector in the CBD took a second blow. ministry will review the forecast in August when pop-up store being a temporary format, the store there is greater clarity on the global and domestic Apart from local retailers, international retailers serves as a pilot to gauge the response from brands economic situation. Nevertheless, it is anticipated have also felt the heat. American casual wear brand and shoppers, on deciding whether to take up the that the consumer-facing sectors such as the retail Abercrombie & Fitch closed its only physical store space on a more permanent basis. trade and F&B services sectors will be negatively in Singapore at Knightsbridge Mall after nearly 10 Separately, SuperPark Singapore, which was closed impacted by the retightening of measures. years of operation. While the company did not state in October 2020, reopened once again after a change From 16th May to 13th June 2021, Singapore the reason for the closure, shoppers were directed in management. Occupying 40,000 sq ft across two reverted to Phase 2 (Heightened Alert) after to its mobile application, allowing them to do online levels at Mall, the indoor sports-oriented a spike in community cases. Dining-in at F&B shopping. With the resurgence of COVID-19 cases in activity park will also include new additions such establishments was not allowed and occupancy the community in May 2021, the retail market faces as an expanded Kids’ Gym with a soft play obstacle limits at shopping malls were reduced to one further challenges. course, a small climbing wall for toddlers and pre- person per 16 sq m of GFA, down from one person schoolers, as well as a new archery play station. per 10 sqm of GFA. Since the initial start of these FAIRLY QUICK BACKFILLING OF VACANT measures, malls have reported a signifi cant drop in SPACE SUPPLY IN THE PIPELINE footfall, which is likely to translate to lower tenant The closure of major retailers last year brought According to Savills estimates, the island-wide sales. As both shopping and dining out have been much concern to the local retail market. supply pipeline4 is limited in 2021 with about complementary activities in malls, shopping trips Fortunately, the large vacant spaces left by these 4 Savills estimated net fl oor area based on an effi ciency rate of may be less attractive and kept shorter. Moreover, retailers in prime locations were taken up relatively 70%.

TABLE 1: Major Projects in the Pipeline, Q2/2021 to 2030

ESTIMATED COMPLETION DEVELOPMENT LOCATION ESTIMATED NLA (SQ FT)*

2021 A&A to existing East Coast Road 188,800

2022 One Holland Village Residences Holland Road 81,000

2023 The Woodleigh Mall Bidadari Park Drive 96,800

2024 Punggol Digital District Punggol Way 172,600

Integrated Development 2025 River Valley Road 90,400 (Redevelopment of site)

2027 The Ryse Residences Pasir Ris Central 270,500

>2030 Changi Airport Terminal 5 Tanah Merah Coast Road 435,300

Source Company announcements, URA, Savills Research & Consultancy * Savills estimates based on an effi ciency rate of between 70% and 75%. savills.com.sg/insight-and-opinion/ 3 Retail

in this recent round of tightened measures, This time round, the government eventually TABLE 2: Prime Rental Changes, 2021 shoppers who visited certain malls during provided some form of support (announced the infectious period were also encouraged to on 28th May 2021), providing salary support PRIME ORCHARD PRIME SUBURBAN take COVID-19 tests, which may deter further under the JSS and rental relief to eligible small PERIOD ROAD (YOY CHANGE) (YOY CHANGE) visitors to these malls. Although workers and medium-sized enterprises and non-profi t returned to WFH once again, stricter crowd organisations which are tenants of qualifying

2021 -15% -10% density limits meant that suburban malls also commercial properties. These measures are registered a decline in shopper traffi c. And expected to serve as a breather for the tenants while suburban malls remained resilient in aff ected since the start of the heightened Source Savills Research & Consultancy 2020, the recent closures of two malls in the measures. West due to their identifi cation with clusters When the economy moved into Phase 3 have brought to our attention that the virus on 28th December 2020, visitors to retail could easily upend the belief that suburban and recreational places were improving by malls will hold up well. the week. However, the reversion to Phase The plunge in sales has caused many 2 (Heightened Alert) on 16th May 2021 retailers to appeal for rental relief or seek the dampened sentiment. Nevertheless, for 2021, government in mandating the closure of non- we maintain our forecast rental decline of essential businesses, similar to the circuit- 15% and 10% for rents of prime Orchard Road breaker period last year. During the circuit- and Suburban malls with the fall front loaded breaker period last year, rental waivers were to 1H/2021. For 2H/2021, it is anticipated mandated and the government provided that rents will remain stable at end 1H/2021 wage subsidies through the Job Support levels, barring any further worsening of the Scheme (JSS) to prevent large-scale job losses. COVID-19 situation.

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