Savills World Research

Briefi ng Retail sector November 2016

Image: Orchard Somerset, SUMMARY The main cause for the weak retail environment is the slowing of the economy and slack in the labour market, which in turn is having an impact on consumers’ purchasing power and buying sentiment.

After a 2.7% year-on-year (YoY) from 7.8% in the last quarter. The ailing retail market, as the slowing dip in July, retail sales (excluding motor vacancies in the Downtown Core economy and slack in the labour vehicles) fell at a sharper rate of 7.3% planning area rose by 1.6 percentage market supressed purchasing power. YoY in August. points (ppts) QoQ to 13.3%, more than the 1.0 ppt for the suburban Prime monthly rents on Orchard areas which now have vacancies of “Although retailers in general are Road held fi rm at S$29.90 per sq 7%. Surprisingly, Orchard vacancy affl icted with economic maladies, ft from the preceding quarter, while levels dipped 1.2 ppts QoQ to 8% in suburban monthly rents slid 2.0% Q3/2016, making this the lowest this those still thriving will continue to quarter-on-quarter (QoQ) to S$28.00 year. per sq ft in Q3/2016. expand and acquisitive interest Even though e-retailing has been in malls remains high.” In Q3/2016, island-wide vacancies putting pressure on brick-and-mortar reached a new record high of 8.4%, retail, it only accounts partly for the Alan Cheong, Savills Research

MCI (P) 142/07/2016 Company Reg No. 198703410D savills.com.sg/research 01 Briefi ng | Singapore retail sector November 2016

Macroeconomic GRAPH 1 overview Growth of retail sales (excluding motor vehicles), Based on the advanced estimates YoY at constant prices, Jan 2011–Aug 2016 released by the Ministry of Trade

and Industry (MTI), the Singapore Retail Sales (Excluding Motor Vehicles) Watches & Jewellery Food & Beverage economy expanded 0.6% (YoY 30% in Q3/2016, making the quarter record the slowest growth since the 20% global fi nancial crisis for the period 2008 to 2009. The impact of the 10% slowing economy on the job market 0% continues to drag down consumer sentiments. -10%

As the economy loses speed and -20% slack within the labour market

emerges, the penchant to spend by -30% Jul Jul Jul Jul Jul locals is reduced. After a 2.7% YoY Jul Jan Jan Jan Jan Jan Jan Sep Sep Sep Sep Sep Mar Mar Mar Mar Mar Mar Nov Nov Nov Nov Nov May May May May May May dip in July, retail sales (excluding 2011 2012 2013 2014 2015 2016 motor vehicles) fell at a sharper rate of 7.3% YoY in August. This marks Source: Singapore Department of Statistics, Savills Research & Consultancy a full year of decline in retail sales since the last increase in August closure of its Novena and Bugis Orchard Road & the 2015. Following a steep fall at 11.1% outlets, the gym chain closed its last CBD YoY in July, the food & beverage branch at Raffl es Place in July due to The retail landscape in the Orchard (F&B) segment slipped 10.9% YoY in cash fl ow issues. area is slowly changing, with the August. This makes a full two years increasing appearance of local of negative YoY F&B sales growth. Notwithstanding the tough retail fashion brands. The home-grown Likewise, for the watches and climate, in the third quarter, some womenswear label, Beyond The jewellery sector, the pace of decline retailers were still aggressive in Vines, moved from a pop-up store to doubled to 15.5% and 21.8% YoY in their expansion plans. In July, a 650-sq ft unit at Mandarin Gallery July and August, respectively. the Japanese lifestyle brand Muji in June. In July, the local jewellery unveiled its tenth local outlet, designer, Choo Yilin, also opened The fi gures on retail spending together with its second Café&Meal her 1,000-sq ft boutique at Mandarin coincide with the dip in tourist Muji in Singapore at Raffl es City. Gallery, the second outlet after the arrivals, which in August registered Spanning over 10,600 sq ft, the new fi rst at Joo Chiat. K+, a multi-concept an infl ux of 1.5 million after a 6.8% Muji store houses the 70-seater café shop by Kinetic Singapore, carrying YoY rise in July to 1.6 million. The which introduces new items on the six local brands, has upgraded to a drop was mainly driven by the fall menu to differentiate from the fi rst 4,300-sq ft permanent shop from a in tourists travelling from Indonesia, outlet at Paragon. In September, Muji pop-up store in Scotts Square. The Malaysia and Australia. reopened its store at ION Orchard local womenswear brand Yacht 21 after its closure for renovation in also expanded to another 1,000-sq Market snapshot August. Besides having a complete ft multi- label travel-lifestyle-themed new look, the new 9,300-sq ft store store at and a Based on the MasterCard Index of offers customised offerings such 420-sq ft shop at Wheelock Place in Consumer Confi dence, between as exclusive merchandise, interior September and October respectively. June and July 2016, consumer consultation services and workshops. confi dence on the prospects of a Prior to its reopening, Muji kept International brands also took the regular income, employment and shoppers engaged with a pop-up opportunity to take up larger spaces economy dived 12, 11 and 9.9 ppts store right outside its renovating in Singapore, consolidating both respectively, refl ecting the overall store at ION Orchard. regional and local operations. In pessimism in the local economy, July, HP Singapore announced the business sector and employment Other than the established retailers, opening of its 1,500-sq ft fl agship market for the year. softened rents have also given store at . Japanese humble and start-up brands retailer Uniqlo also unveiled its fi rst In the light of the gloomy economic opportunities to open up in prime global fl agship store in Southeast outlook, where consumers tighten malls. Previously located at Defu, Asia in September. Located at their belts and business costs Seafood Paradise moved to Marina , the store has 29,000 increase, businesses continue Bay Sands in September, taking up sq ft of shopping space across three to wind up, leaving malls vacant. the space at level two which was levels. In mid-September, Michael Even the once-trendy gym chain, formerly occupied by a Spanish Kors opened a two-storey fl agship California Fitness, was forced to exit restaurant, Santi, and Chinese store, spanning 6,957 sq ft at the market. Shortly after the abrupt restaurant, Beijing No. 1. Mandarin Gallery.

savills.com.sg/research 02 Briefi ng | Singapore retail sector November 2016

There were also brands which months of upgrading works. Since Following the closure of Funan tapped into the softer rental market the main catchment of the area – DigitaLife Mall, Park Mall also shut to establish their presence in a high- young families – tend to dine out down in September, for a commercial footfall district. In August, both the more frequently, the refurbished mall redevelopment project comprising American label Marc Jacobs and a has raised the F&B component to two offi ce towers and an ancillary United States streetwear brand, Off- 33.0% from 20.0%. retail component. As a result of the White, welcomed their new stores mall’s closure, tenants such as Kith at The Paragon and 268 Orchard Funan DigitaLife Mall, which was Café and the furniture retailer Xtra Road respectively. Later that month, closed for redevelopment at the have relocated to Marina Square, British designer Anya Hindmarch end of June, was also rebranded sharing a 13,000-sq ft unit. The Bear inaugurated her fi rst standalone as a lifestyle destination, renamed Knows has also moved to a 2,500-sq store in Singapore, occupying a Funan. Besides offering online-to- ft store at The Centrepoint in Orchard 538-sq ft unit at the Takashimaya offl ine services, the new mall will Road. Department Store along Orchard be introducing sports amenities like Road. a climbing wall, an experimental Rents & vacancy space and a cinema which will be Despite the economic uncertainty Besides new stores opening, the Singapore’s fi rst multi-dimensional and poor consumer sentiments, French multi-brand beauty retail cinematic experience. surprisingly for Q3/2016, prime chain Sephora also opened its relocated fl agship store at ION GRAPH 2 Orchard basement two in July. Even though the new 10,000-sq ft fl agship Prime retail rents, 2008–Q3/2016 store is smaller than the previous 14,500-sq ft store on the ground Orchard Suburban 45 fl oor, its refurbished layout and additional experiential retail elements 40 nevertheless saw overwhelming customer response. 35 The F&B players were also relatively active in the third quarter. In July, 30 Japan Food Town opened its fi rst store in . After a revamp, 25 British clothing and food retailer S$ per sq ft per month Marks and Spencer reopened its 20 new 30,000-sq ft fl agship store at Wheelock Place in September, 15 which also comprises a 60-seat 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 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2008 2009 2010 2011 2012 2013 2014 2015 2016 café near its Food Hall. Instead of increasing footfall with more F&B Source: Savills Research & Consultancy choices, landlords also introduced more lifestyle and entertainment GRAPH 3 aspects to keep malls occupied. Vacancy rate, 2011–Q3/2016 GuavaLabs established a 2,000-sq ft fi tness studio at Mandarin Gallery Orchard Downtown Core Outside Central Region in July, while a karaoke chain, Ganso 16% Manekineko, expanded its seventh 14% outlet in August, a new 23,874- sq ft fl agship branch at Orchard 12% Cineleisure. 10%

City Fringe & Suburban 8% As Singapore’s retail scene continues 6% to face headwinds, even strategically located suburban malls which used 4% to stay resilient in the sluggish 2% retail climate, fi nd restoration and new elements necessary to attract 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 shoppers. At the end of the third 2011 2012 2013 2014 2015 2016 quarter, Sengkang’s mall offi cially reopened after 11 Source: Urban Redevelopment Authority (URA), Savills Research & Consultancy

savills.com.sg/research 03 Briefi ng | Singapore retail sector November 2016

TABLE 1 Major projects in the pipeline, Q4/2016–2020

Development Location Estimated NLA (sq ft) Estimated completion

Downtown Gallery Shenton Way 160,000 2016

Singapore Post Centre AEI Eunos Road 8 269,100 2017

Hillion Mall Jelebu Road 152,500 2017

Marina One (The Heart) Marina Way/Straits View 140,000 2017

Paya Lebar Quarter Paya Lebar Road/Sims Avenue 340,000 2018

Northpoint City Yishun Central 1 315,250* 2018

TripleOne Somerset Podium AEI Somerset Road 88,500* 2018/2019

Jewel Changi Airport Airport Boulevard 576,000 2019

Funan North Bridge Road 324,000 2019

Source: Company announcements, URA, Savills Research & Consultancy *Savills estimation, based on an effi ciency rate of between 70% and 75%. monthly rents on Orchard Road have risen and are more than enough comes from two new integrated held fi rm at S$29.90 per sq ft. This to offset the improvement in Orchard projects, namely Downtown Gallery could be due to the infl ux in the past vacancies, leading to a full-year rise and Tanjong Pagar Centre. The three months of new tenants to the in island-wide vacancies to 8.4% remaining supply comes from the Orchard shopping district, thereby in Q3/2016, from 7.8% in the last refurbished GSH Plaza, as well as the helping to support the demand for quarter. The third quarter’s island- revamped Beach Centre. Orchard retail spaces. Moreover, wide vacancy rate is a record high there was no new retail supply in the from the Urban Redevelopment From 2017 to 2020, approximately Orchard Road area for the quarter. Authority’s (URA) latest data time 6.2 million sq ft of new retail space is On the other hand, suburban monthly series that was constituted in 2011. expected to enter the physical stock. rents slid 2.0% QoQ to S$28.00 Similarly, in the Downtown Core Similarly, in 2017, the new supply per sq ft in Q3/2016, on the back of planning area, vacancy rates rose largely involves integrated projects the subdued economic condition, at a higher rate of 1.6 ppts QoQ to in the Central planning region. The concerns among consumers, and 13.3%, almost reaching the peak major developments consist of the a general weakening of the retail scene. The rents for suburban malls of 13.4% from the second quarter new retail mall at Singapore Post were also likely to be dampened by last year. Suburban vacancies have Centre and The Heart at Marina One. the additional 431,000 sq ft of new also gone up by 1.0 ppt QoQ to 7% in the Bukit Panjang retail stock in the quarter. in Q3/2016, reaching the highest planning area is the only signifi cant vacancy level in terms of URA’s time development in 2017 that is not For the whole of Q3/2016, with series on this dataset. located within the Central planning the exception of the Orchard region. Subsequently, in 2018, planning area, retail vacancy levels Future supply the major projects are also mixed continued to increase. This is due According to the latest data released developments, such as Paya Lebar to a confl uence of factors, including by URA as of Q3/2016, there will be Quarter and . Apart the lack of new retail supply and an estimated retail supply of 667,000 from the existing podium of TripleOne sustained demand for Orchard retail sq ft in the last quarter this year. The Somerset, which is embarking on spaces. Consequently, the vacancy upcoming retail supply for the year Asset Enhancement Initiatives (AEI), level there dipped 1.2 ppts QoQ to is mainly from the new mixed-use there is no planned major retail 8%, the lowest this year. However, developments in the Central planning supply in the Orchard planning area the vacancy levels in other areas region. The main bulk of the supply in the near term. 

savills.com.sg/research 04 Briefi ng | Singapore retail sector November 2016

OUTLOOK The prospects for the market

A survey conducted by HSBC and oversupply of retail space, we to us but to our tourism exporting revealed that 57% of Singaporeans believe that this is only a partial countries as well. In such a situation, made online purchases in August, answer. We believe that there are the sale of comparison goods, those making Singapore the ninth other factors and in 2016, what has that one buys infrequently, will be largest online retail market in the been the major drag on the industry is negatively impacted. world on a per capita basis, and our slow-moving economy. Together the largest in Southeast Asia. By with the slack emerging in the labour Thus far, we have only broached 2020, MTI aims to expand the market, the impact on household the revenue side of the retailing local e-commerce market from the disposable income is more acute than and F&B industry. On the cost side, current 3.0% to 10.0%. in a normal economic downturn. This the obsessive drive towards labour lack of purchasing power gels with the productivity is also driving up cost In line with Minister for Trade feedback from tenants, not only those without a commensurate increase in and Industry S Iswaran’s call for from general retailing, but also from productivity and service levels. retailers to adopt online channels some F&B operators. as well as mobile applications to Will all this impact capital values engage shoppers, more retailers In the third quarter, the substantial of shopping malls? Unlikely. This are integrating e-commerce decline of 2.0% QoQ in suburban is because at about 4.0%, the with their existing conventional mall rents contrasts sharply to those capitalisation rate for malls is still at channels. Nevertheless, physical along Orchard Road. If, for another a premium to those of offi ces. On stores are likely to remain as one quarter or two, rents in the latter area top of that, although retailers may be of the crucial aspects for retailers. continue to perform relatively better affl icted by the economic slowdown, Traditional retailers like Courts have than the former, it will debunk the myth many of the better-run malls are still been investing in their web store, that many have subscribed to, namely almost fully-tenanted. Even if passing but they are also concurrently suburban malls are more resilient to rents were to soften, the low interest evolving their retail store into the downturn given that they have a environment would still drive investor experiential spaces for shoppers to captive market in the heartlands. demand towards this relatively high try out gadgets, seek assistance or Moving forward, another factor will yielding asset class. For rents, we collect their online orders. increase its infl uence on retailing here; expect gross asking rents for both While the market has been that of budget air travel which makes prime Orchard Road and Suburban ascribing the ills of retailing to regional cities with a lower retailing malls to soften equally, by 7.5 to competition from online retailers cost base more accessible not only 10.0% in 2017 on a YoY basis.

Please contact us for further information Savills Singapore Savills Research

Christopher J Marriott Sulian Claire Alan Cheong Simon Smith CEO, Southeast Asia Executive Director, Retail & Lifestyle Senior Director, Singapore Senior Director, Asia Pacifi c +65 6415 3888 +65 6415 3880 +65 6415 3641 +852 2842 4573 [email protected] [email protected] [email protected] [email protected]

Savills plc Savills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 700 offi ces and associates throughout the Americas, Europe, Asia Pacifi c, Africa and the Middle East.

This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, 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/research 05