Savills World Research Singapore Briefi ng Retail sector March 2018 Image: Punggol Waterway Point SUMMARY The outlook for suburban retail market is improving due to high footfall and AEI efforts, while Orchard remains muted amid intense regional competition. Owing to selective spending While prime monthly rents on patterns and competition from online Orchard Road stayed fl at at S$29.90 “Although structural challenges promotions, quarterly retail sales per sq ft, those in the suburban area (excluding motor vehicles) growth increased 2.1% YoY to S$28.80 per sq continue to plague the moderated from 2.4% year-on-year ft, due to higher rents fetched in newly market, prime space remains (YoY) in Q3/2017 to 1.3% YoY in renovated malls and those with high Q4/2017. shopper traffi c. insulated.” Alan Cheong, Savills Research Supported by improvement in We forecast that prime space in occupancy in the central and suburban well-managed malls will post positive areas, the island-wide retail vacancy rental growth of 3.0% YoY in 2018. level dropped 0.8 of a percentage point (ppt) quarter-on-quarter (QoQ) to 7.4% in Q4/2017. MCI (P) 142/07/2016 Company Reg No. 198703410D savills.com.sg/research 01 Briefi ng | Singapore retail sector March 2018 Macroeconomic overview GRAPH 1 The advanced estimates released by Growth of retail sales (excluding motor vehicles), the Ministry of Trade and Industry (MTI) YoY at constant prices, 2011 – 2017 showed that the Singapore economy expanded by 3.6% YoY in Q4/2017, Retail sales (excluding motor vehicles) Watches & jewellery Computer & telecommunications equipment easing from the 5.5% growth in the 40% preceding quarter. Even though the growth of the manufacturing sector 30% eased from 19.1% YoY to 4.8% YoY in the fourth quarter, it remained the 20% strongest growth area in the economy, 10% leading overall economic growth. For the whole year of 2017, the local 0% economy grew 3.6%. -10% In the advance release of the Labour Market Report for 2017 by the -20% Manpower Research and Statistics -30% Department, the job market continued Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 to improve in Q4/2017 as economic 2011 2012 2013 2014 2015 2016 2017 conditions brightened. Unemployment Source: Singapore Department of Statistics, Savills Research & Consultancy rates declined 0.1 of a ppt to 2.1% in December 2017, lower than the preceding quarter and previous year. and other eating places such as cafés To keep up with evolving consumer Owing to the pick-up in economic in Q4/2017. However, the higher trends, the mall also created a self- growth and restructuring of the spending is likely because of the year- service zone, #PlayatJCube The economy, the real median gross end festive season celebrations, rather Corner. Apart from e-stores, this monthly income of residents increased than an improvement of the overall is another alternative to leverage by 0.8% YoY in 2017. Further bolstered consumer sentiment. on technology to overcome high by increased arrivals from Indonesia business costs and manpower-lean and China, visitor numbers reached Market snapshot issues. Spanning across 968 sq a record high of almost 4.4 million in Some retail malls and retailers were ft and situated on level three, the Q4/2017, 9.8% more than a year ago. trying to redesign their retail offerings new self-service lifestyle zone has to cater to a more discriminating 19 vending machines providing Despite the improvements in tourism consumer market, namely the different dining, entertainment and and labour sector, the growth in retail millennials who were born between shopping selections for extended sales slowed from the preceding 1982 and 2004. According to a study operating hours. In November, a quarter. Retail sales (excluding motor conducted by research consultancy click-and-collect service was also vehicles)1 in November were expected Accenture in 2016, millennials launched in JCube mall to meet the to surge because of the shopping represent more than 45.0% of the evolving online shopping needs. It is events such as Singles’ Day, Black population in Asia Pacifi c, with 60.0% a collaboration with Lazada in which Friday and Cyber Monday, as well as of the millennials expected to stay in shoppers can collect, try and return new mobile launches which took place Asia by 2020. Moreover, millennials their purchases at a single station. in the month. Nevertheless, sales mildly in Asia will have higher purchasing power than older generations, with increased by 3.8% YoY. This could be Orchard Road & the CBD an estimated disposable income of due to competition with the overseas Singapore remained one of the top US$6.0 trillion (S$8.07 trillion) by 2020. and local online retailers during the markets for overseas retail brands to sales event period. Consumers expand into Southeast Asia. Japanese To engage this group of digital savvy also seemed to be selective in their mall Lumine opened its fi rst branch consumers who are highly active outside of Japan, taking up 10,000 discretionary expenditure, curbing and infl uential on social media, sq ft of space at Clarke Quay Central, spending on items like watches and beauty and health retailer Watsons which the home-grown lifestyle jewellery. As a result, the growth in revamped its store in Bugis Junction quarterly retail sales (excluding motor with digital screens and multimedia store Naiise vacated in May 2017. It vehicles)2 moderated from 2.4% YoY platforms. JCube mall, which allows comprises a four-zone retail section in Q3/2017 to 1.3% YoY in Q4/2017. shorter leases of one to three years, and a café. As part of the expansion According to the Food & Beverage regularly brings in different tenants plans to Southeast Asia, the Japanese Services Index3, consumers spent with new retail concepts to keep the discount store Don Quijote (named more at restaurants, fast food outlets mall exciting for shoppers. One of its Don Don Donki) has also opened its latest retail tenants, dessert cafe Fart fi rst store in Singapore in Orchard 1 Retail Sales Index at Constant Prices (Seasonally Tartz, was given a prime central unit Central mall, occupying 15,037 sq ft Adjusted), Monthly. Updated as at 23 February 2018. 2 Retail Sales Index at Constant Prices, Quarterly. on the second fl oor because of its across two levels. Updated as at 23 February 2018. “garden-esque” store design which 3 Sales Index of Food & Beverage Services at Constant has the Instagram-worthy element, and Earlier in November, more Japanese Prices (Seasonally Adjusted), Monthly. Updated as at 12 February 2018. appeals to a younger crowd. food and beverage (F&B) players savills.com.sg/research 02 Briefi ng | Singapore retail sector March 2018 joined in the local retail scene. The Rents & vacancy This was likely dragged by down by sister brands of LeTao – Maple Mania After deteriorating for three quarters, the competition from regional cities and Tokyo Milk Cheese Factory, the island-wide retail vacancy level such as Bangkok and Hong Kong opened at ION Orchard and Raffl es dropped 0.8 of a ppt QoQ to 7.4% in which aim for a slice of the tourist dollars. Even though tourist arrivals City Shopping Centre respectively. Q4/2017, the lowest since Q1/2016. In the same month, a new Japanese increased in Q4/2017, the decline in This was supported by the decline drugstore Welcia-BHG also regarded tourism receipts for F&B and shopping in vacancy levels in the central and Singapore as the main starting point in Q3/2017 could have extended to suburban areas. to introduce the concept of drugstores Q4/2017. As the performance on in Southeast Asia. Taking up 2,700 Orchard Road is largely dependent Bolstered by the healthy net take- sq ft on the ground fl oor of the BHG on tourism arrivals and spending, the up in the Downtown Core (97,000 department store in Bugis Junction, overall Orchard rental market stayed sq ft) and Orchard Planning Area the new store comes with a pharmacy soft in Q4/2017. Nonetheless, Orchard and two zones for health and beauty. (86,000 sq ft), the vacancy level of prime rents on ground fl oor with high the Central Region, comprising both shopper traffi c remained resilient. The While some overseas brands see planning areas, declined by 0.8 of a Savills prime monthly rents in Orchard Singapore as an ideal market to begin ppt QoQ to 7.9%. However, the rents Road stayed the same at S$29.90 per with, a German company Degussa in Central Region did not record the sq ft for the sixth consecutive quarter GoldHandel suffered losses and shut same rise. According to the Urban in Q4/2017. its 1,000-sq ft store at Orchard, which Redevelopment Authority (URA), the also its fi rst precious metals branch in retail rental index for Central Region The suburban (Outside Central Region) Asia. dipped 0.8 of a ppt QoQ in Q4/2017. rental market continued to fare well. City Fringe & Suburban GRAPH 2 To stay relevant in the challenging Prime retail rents, 2008 – 2017 retail scene, some malls and retailers are recreating a different shopping Orchard Suburban 45 experience to gain a competitive edge over their online competitors. The home electronics, IT and furniture 40 retailer Courts Singapore invested S$10.0 million to refurbish all its local 35 outlets, including the megastore in Tampines. After a two-month revamp, 30 the fl agship store, spanning over S$ psf pm 136,000 sq ft, showcases new retail 25 concepts and showroom areas.