– November 2020

MARKET IN MINUTES Retail Savills Research

Savills team

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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]

A polarized market RESEARCH Rents generally continue to trend downwards alongside weak occupier Alan Cheong Executive Director demand. Singapore +65 6415 3641 • With the reopening of shops and the resumption of dine-in • Notwithstanding a stronger pick-up in shopper traffi c and [email protected] services in the second phase of the post-Circuit Breaker spending in most suburban malls, Savills monthly prime rents Simon Smith (CB), retail (excluding motor vehicles) and food and in Suburban Area dipped by 4.9% QoQ to S$26.30 psf in Q3. Senior Director beverage (F&B) revenue in Q3 showed a slower pace of Asia Pacifi c decline compared to a year ago. • We expect rents in general to fall island-wide with Orchard +852 2842 4573 Road malls the hardest hit. As incomes have taken a hit [email protected]

• Even though retail vacancy did not worsen further from Q2 through salary cuts and retrenchments, we expect 2021 MCI (P) No. 009/08/2019 because of supply withdrawal from the market, it remained rents to be biased downwards. Company Reg No. 198703410D

at an historic high of 9.6% in Q3 as net demand contracted Savills plc Savills is a leading global real further. estate service provider listed on the London Stock Exchange. The company established in 1855, has • As vacancy levels in Suburban Area eased to 7.1% on the back a rich heritage with unrivalled “ The retail and F&B landscape growth. It is a company that leads of tightened supply, Orchard Area also edged down from last rather than follows, and now has over 600 offi ces and associates quarter’s record high to 9.1%. is evolving quickly with some throughout the Americas, Europe, Asia Pacifi c, Africa and the Middle East. This report is for general sectors doing exceedingly informative purposes only. It may • Savills monthly prime rents in Orchard Area fell by 6.9% not be published, reproduced or quarter-on-quarter (QoQ) to S$25.50 psf in Q3. This could quoted in part or in whole, nor may well, for now.” it be used as a basis for any be due to a move towards more fl exible and shorter-term contract, prospectus, agreement or other document without prior leases from landlords who consent to rental discounts to ALAN CHEONG, SAVILLS RESEARCH consent. Whilst every eff ort has been made to ensure its accuracy, curb rising vacancies. Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research. savills.com.sg 1 Retail

MACROECONOMIC OVERVIEW such as Hang Heung, Joy Luck GRAPH 1: Retail Sales And F&B Sales Growth, January Advance estimates released by the Ministry Teahouse and Luke’s Lobster. 2015 to September 2020 of Trade and Industry (MTI) show that Meanwhile, retail vacancy across the F&B Sales Retail Sales (excluding motor vehicles) Singapore’s economic growth in Q3/2020 Central Region, with the exception of Orchard 20% has recovered from the sharp contraction in Area, continued to rise in Q3. This could be 10% Q2. Even though the economic performance attributed to the Work-from-Home (WFH) improved on the back of the gradual culture which reduced the spending mobility 0% resumption of most business activity, the of consumers, resulting in shops facing a Year-on-Year (YoY) growth in Q3 remained reduced catchment. This was particular felt in -10% negative at -7.9%. The retail and food services the Central Business District (CBD). -20% industries are still weighed down by a weak Consequently, rents fell, a trend which labour market and safe-distancing measures began early this year, with our rental index -30% for Central Region falling at a faster pace of YOY CHANGE YOY and this dragged down the performance -40% of the overall services sector. Total 4.5% QoQ in Q3. For the quarter in review, employment continued to shrink in Q3 while Savills monthly prime rents3 for Orchard -50% retrenchment levels were only surpassed by Area fell for a third consecutive quarter to the period during the Global Financial Crisis. S$25.50 psf, down 6.9% from the previous -60% Meanwhile, tourism remains in the quarter. This could be due to a move towards Jul Jul Jul Jul Jul Jul Jan Jan Jan Jan Jan Jan Sep Oct Oct Oct Oct Oct Apr Apr Apr Apr Apr Apr doldrums as the borders remained largely more fl exible and shorter-term leases from 2015 2016 2017 2018 2019 2020 shut to foreign visitors. Despite the gradual landlords who consented to rental discounts Source Singapore Department of Statistics, Savills Research & Consultancy relaxation of border controls and quarantine to curb rising vacancies. Notwithstanding requirements, which helped to lift visitor the stronger pick-up in shopper traffi c and arrivals from 3,801 in Q2 to 25,255 in Q3, spending in most suburban malls on the back of larger residential catchment and WFH GRAPH 2: Vacancy Rates, 2011 to Q3/2020 these numbers are still a far cry from the fi ve million visitors recorded in Q3/2019. arrangements, Savills monthly prime rents in Retail sales (excluding motor vehicles)1 Suburban Area also dipped by 4.9% QoQ to Island-wide Downtown Core Orchard Suburban Area 2 12% and F&B revenue in Q3 also showed a S$26.30 psf in Q3, marking a decline for three slower pace of decline from a year ago as straight quarters (Graph 3).

10% shops began to reopen and dine-in services for F&B establishments resumed in late THE CULLING OF PASSE RETAIL Q2. Nonetheless, discretionary spending MODELS ELIMINATED MAJOR 8% remained muted compared with pre- TENANTS pandemic levels, especially for categories Anchor tenants such as department stores 6% including food & alcohol, department stores have been common in most malls, especially and restaurants (Graph 1). in larger-format shopping centres which have 4% a signifi cant amount of non-prime space RENTS CONTINUE TO SLIDE AMID with minimal visibility. While some serve as 2% SOFT OCCUPIER DEMAND crowd-pullers to help draw traffi c, the exit As more stores reopened and dine-in of such anchor tenants can also backfi re, 0% services resumed, footfall and tenant sales leaving substantial space vacant and aff ecting in most malls saw a gradual recovery from rental revenue if the landlord fails to fi nd a the previous quarter in Q3. Nonetheless, replacement in time. occupier demand did not see a similar Department stores have been generally Source URA, Savills Research & Consultancy recovery, with retail take-up contracting suff ering from declining sales since 2015, further by 538,000 sq ft (nett) in Q3. resulting in some closures and consolidations Although retail vacancy did not worsen since last year. Following the shutdown of GRAPH 3: Prime Retail Rents, 2008 to Q3/2020 further from Q2 because of supply Metro’s fl agship store at The Centrepoint in withdrawal of 570,000 sq ft (nett) from September last year, Isetan ceased operations Orchard Area Suburban Area the market, retail vacancy remained at an at its Westgate outlet in March 2020. 37 historical high of 9.6% in Q3 (Graph 2). Although some operators such as Isetan While retail vacancy in Suburban Area and BHG have no further downsizing plans, 35 fell 1.0 percentage point (ppt) QoQ to 7.1% malls which are largely occupied by such on the back of tightened supply, Orchard anchor tenants may be at risk of a sudden 33 Area remained stable in Q3, edging down surge in vacancies if they were to vacate by 0.2 of a ppt from last quarter’s record their premises in the light of falling sales 31 high to 9.1%. Despite the protracted travel and footfall. This is the case for Robinsons bans which continue to drag on crowd levels which shut their four-storey Jurong outlet

S$ PSF PM at JEM in August and will soon exit the local 29 and sales takings in tourist-centric retail destinations, retail occupancy in Orchard scene with the upcoming closure of their last two stores at Raffl es City and The Heeren. 27 Area was supported by recent major openings including Decathlon, Harvey Norman Although most of the vacated space in JEM and JustCo at The Centrepoint, as well as will be taken up by IKEA by next year, it will 25 the debut of some new F&B players along be challenging to fi ll up three and six levels of retail space in Raffl es City and The Heeren 1 Retail Sales Index at Constant Prices, Monthly (exclude any online orders which are sent from foreign addresses). respectively with alternative traffi c drivers Updated as at 20 October 2020. Source Savills Research & Consultancy 2 Food & Beverage Services Index at Constant Prices, 3 Savills estimated rent for a 1,000-sq ft prime ground fl oor Monthly. Updated as at 20 October 2020. unit let to a fashion retailer.

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after they move out. Meanwhile, lockdown and year, the total annual supply pipeline4 in 2020 is Coupled with sluggish tourist infl ow, a slow and safe distancing measures for major entertainment expected to be at a low of 329,400 sq ft, below uneven recovery in the labor market weighing on tenants, like Cool De Sac and SuperPark at Suntec the fi ve-year (2015 to 2019) quarterly average of wages and consumer sentiment will continue to City, represented a fi nal blow and forced them out 384,800 sq ft. Savills estimates that for the next put a drag on retail and F&B segments alongside of the market, adding to the glut of empty stores. four years (2021 to 2024), the average annual retail prolonged restrain in local discretionary spending. supply pipeline is around 550,000 sq ft, down from Moreover, the recent accelerated shift towards MORE LOCAL BRANDS ENTER the yearly average of 1.5 million sq ft in the last ecommerce also hinders spending in physical ORCHARD RETAIL SCENE fi ve years. The retail supply pipeline is expected to stores. Although the online sales component in Q3 With further pressure from the shift to online pick up after 2024 when major developments such moderated from Q2, it is still almost double the retailing and weaker consumer sentiment, some as the retail component of The Ryse Residences pre-pandemic level. Going forward, these are likely major international retailers such as Tokyu Hands and Changi Airport Terminal 5 are scheduled to to put more pressure on malls and retailers, which at Westgate and H&M at also complete (Table 1). are now dependent on domestic demand before shuttered in Q3, while Topshop ceased operations tourist numbers normalise. at their last branch at VivoCity. Competition in OUTLOOK Despite new take-up in Q4 including Mummys F&B sector has been no less intense, with the latest The gradual resumption of business operations in Market and Shake Shack at , as well closure of all fi ve branches of Bakerzin, as well the second phase of reopening the economy may as Harvey Norman at Westgate, many tenants as the departure of multi-food concept Picnic at have helped to ease the contraction of economic are recalibrating their cost structures which may . growth in Q3, but Singapore is still in the midst aff ect lease renewals. If more major tenants like As more foreign brands shut their doors, some of a recession. While MTI maintained its full-year Robinsons were to leave the market, retail vacancy local digital-native brands seized the opportunity economic forecast for 2020 at -7.0% to -4.0% could worsen unless landlords in general off er even to expand their physical footprint in prime year-on-year (YoY), the Monetary Authority of greater leeway in their rental terms. This could shopping districts like Orchard Area. Notably, Singapore (MAS) expects a moderate pace of potentially weaken retail rents further in Q4. Along economic recovery in the coming quarters, taking Hollyhoque has recently launched at Orchard tourist shopping belts like Orchard Area where longer than previous recessions. The recovery Gateway, and The Closet Lover unveiled their new landlords are generally facing rental pressure outlet at . Following their latest could be further aff ected by a global resurgence of from ailing tenants, prime rents are forecast to store opening at Vivocity, home-grown labels infections which may lead to extended lockdowns fall by up to 20% YoY by end-2020. Although retail Love Bonito and By Invite Only are preparing the and weaker external demand. occupancy in suburban malls is showing greater opening of their new stores at ION Orchard and In view of the stringent border controls, resiliency as they are located within residential 313@Somerset respectively. tourism-related industries are unlikely to see signifi cant recovery in the near term. Even though estates and therefore easily accessed by those SUPPLY IN THE PIPELINE the government is giving away vouchers to boost working from home, prime rents in these malls are Owing to delays in the construction timeline, the domestic tourism, the outlook for tourism demand likely to remain soft in Q4. (Table 2) The reason supply pipeline for retail space has been tapering remains muted as most travel restrictions are being that so long as social distancing measures are in the last two quarters. Including the supply of likely to remain in place at least through this year. in place, shopper and patron densities will remain 52,700 sq ft expected to complete by end of the 4 Savills estimated net fl oor area based on an effi ciency rate of lower than pre-COVID-19 levels. Nevertheless, 70%.

TABLE 1: Major Projects In The Pipeline, Q4/2020 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 174,600

Integrated Development >2024 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%.

TABLE 2: Prime Rental Growth Forecast

PERIOD ORCHARD AREA SUBURBAN AREA

2020F -20.0% to -10.0% YoY -15.0% to -10.0% YoY

Source Savills Research & Consultancy

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GRAPH 4: Retail and Recreation Percent from Baseline, TABLE 3: Heatmap Of Revenue Collected By Various Retail And F&B Tenants In February to November 2020 CBD

100 PUBS F&B POPULAR F&B HIGH-END FAST FOOD AND 90 RETAIL SUPERMARKET MASS MARKET RANK (MALL OR (MALL OR BARS (MALL) (MALL) FOOD (MALL OR SHOPHOUSE) SHOPHOUSE) (IN 80 SHOPHOUSE) MALLS) 70 1 xx 60 2 xx x 50 % 3 xxx 40 4 x 30 5 20 6 x 10 7 0 8 9 10

Source Google Mobility Report, Savills Research & Consultancy Source Savills Research & Consultancy Rank 1:  20% of pre-COVID-19 levels Rank 5: pre-COVID-19 levels Rank 10: double of pre-COVID-19 levels

GRAPH 5: Retail and F&B Performance in a Pre-COVID TABLE 4: Heatmap Of Revenue By Various Retail And F&B Tenants In Suburban and COVID World Area

Overall Retail Sales PUBS AND 6% F&B POPULAR BARS F&B HIGH-END FAST FOOD 6% RETAIL SUPERMARKET MASS MARKET (IN UPPER RANK (MALL OR (MALL OR 6% (MALL) (MALL) FOOD (MALL OR MIDDLE SHOPHOUSE) SHOPHOUSE) 6% SHOPHOUSE) INCOME 6% ESTATES) 6% 6% Pre-COVID Retail Sales 1 6% COVID World Retail Sales – 6% Scenario n 2 x 6% 3 x x 6% 6% COVID World Retail Sales – 4 x 6% Scenario 2 6%A COVID World Retail Sales – 5 6% Scenario 1 6% 6 x 6% 7 xx 6% B 6% 8 x x 6% 6% 9 x 6% Time 10 2019 2020F 2021F 2022F Source Savills Research & Consultancy Source Savills Research & Consultancy Rank 1:  20% of pre-COVID-19 levels Rank 5: pre-COVID-19 levels Rank 10: double of pre-COVID-19 levels

Google is reporting that on an island-wide scale, F&B industry grouping to have its performance pin down the topology of the industry in two years’ retail and recreational areas are seeing human intercept shifted down and the long-term growth time. traffi c gradually returning to levels just before still undecided because trades that previously Tables 3 and 4 show the heatmap of revenues by the lockdown on 7th April 2020. (Graph 4 – The did well may fare diff erently in a COVID world. broad tenant types in CBD and Suburban locations. baseline is the median value, for the corresponding Then there are those that did not do well prior These are the fi ndings obtained after spending day of the week, during the fi ve-week period 3rd to COVID-19 but are now thriving. Also, we weeks soliciting feedback from various retail and January to 6th February 2020.) expect further changes to the landscape when the F&B operators plus plying the grounds to weed off Notwithstanding the recovery in visitation economy opens up further and we may even see the weekend-weekday eff ects. numbers, feedback from most retail and F&B that those who are doing exceedingly well during The heatmaps are likely to change when operators seem to imply that revenues are nowhere Phase 1 and 2 of the lockdown may fi nd their Singapore’s economy and cross border travel opens near pre-COVID-19 levels. What this means is that fortunes turn south. For landlords, the best that further over time. Also, if more landlords swing COVID has brought about a reset for the sector. they can do to adapt to the fl uidity of the situation over to the GTO modus of rental collection, we Higher unemployment rates and widespread is to turn to collecting a higher proportion of may see another shift in the retail landscape with salary cuts are likely to lead to a degrading of their rents based on their tenants Gross Turnover recovery coming earlier than if the status quo is consumption power. In stylised terms (Graph 5), (GTO). However, one common fact is that the maintained. On balance, rents for 2021 may still be the eff ect of the pandemic has led the retail and multitude of forces at play means it is diffi cult to biased downwards.

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