Savills World Research

Briefi ng Retail sector May 2018

Image: Capitol Building, 15 Stamford Road SUMMARY A gradual pick-up in retail rents is expected in the near term.

For January and February, Prime monthly rents in Orchard combined retail sales (excluding motor Road and the suburban areas “Current determinants driving vehicles) increased 1.1% year-on-year remained at S$29.90 per sq ft and (YoY) due to festive spending and S$28.80 per sq ft respectively. consumption and tenant tourism receipts, which were boosted behaviour are vectoring by more visitor arrivals. Domestic consumption is being supported by increased employment up rents, glossing over Owing to the lack of new retail within the disruptive and augmentative supply in Q1/2018, the island-wide business sectors while the opening of fundamental weaknesses.” retail vacancy rate saw a marginal new malls is causing rents, particularly Alan Cheong, Savills Research increase of 0.1 of a percentage point in the suburban areas, to rise 2.0% to (ppt) from last quarter to 7.5%. 5.0% YoY in Q1/2018.

MCI (P) 142/07/2016 Company Reg No. 198703410D savills.com.sg/research 01 Briefi ng | Singapore retail sector May 2018

Macroeconomic GRAPH 1 overview Growth of retail sales (excluding motor vehicles), According to the Ministry of Trade YoY at constant prices, 2012 – Q1/2018 and Industry’s (MTI) preliminary estimates, the Singapore economy Retail sales (excluding motor vehicles) Wearing apparel & footwear Food retailers grew 4.3% YoY in Q1/2018, up 50%

from the 3.6% YoY expansion in 40% the preceding quarter. Growth was mainly led by the brisk performance 30%

in the manufacturing sector, which 20% rose from 4.8% YoY in Q4/2017 to 10.1% YoY in Q1/2018. All clusters 10%

within the sector expanded, with the 0% electronics and precision engineering clusters recording the highest -10% growth. -20%

In line with the pick-up in economic -30% Jul Jul Jul Jul Jul Jul Jan Jan Jan Jan Jan Jan Jan Sep Sep Sep Sep Sep Sep Mar Mar Mar Mar Mar Mar Nov Nov Nov Nov Nov Nov May May May May May activity, the job market also improved May in Q1/2018. Preliminary data 2012 2013 2014 2015 2016 2017 2018

from the Ministry of Manpower’s Source: Singapore Department of Statistics, Savills Research & Consultancy Labour Market Report Advance Release Q1/2018 showed that the unemployment rate continued to fall, into Singapore’s retail market, Centre. Hong Kong chain Tsui Wah down to 2.0% in March 2018 from particularly food chains offering is also launching in Singapore, 2.1% in December 2017. The number takeaway options. Say Chiizu cheese with plans to open its fi rst outlet in of retrenchments also declined toast from Thailand has massive Southeast Asia soon. from 3,680 in Q4/2017 to 2,100 in expansion plans in Singapore, setting Q1/2018. Despite the drop in layoffs, up takeaway kiosks in the central and Lastly, Millennium Dance Complex, a consumers seem to have cut back on suburban areas. Within one week dance studio from the United States, spending as there was no signifi cant in January, it opened its fi rst four set up its fi rst Singapore branch at increase in expenditure for the fi rst branches in Singapore: at VivoCity, , taking up three units two months of 2018. 313 @ Somerset, White Sands on the second fl oor. Shopping Centre and The Clementi During the Chinese New Year festive Mall. In addition to a takeaway Orchard Road and the period this year, consumers spent outlet at , opened CBD less at restaurants and on catering, in February, the Bangkok cheese Facing competition from e-commerce resulting in a 5.1% YoY dip in the toast brand opened its fi rst and only and fast fashion labels such as Zara and H&M, less resilient brands have combined Food & Beverage (F&B) dine-in café, with an open kitchen 1 been forced to exit the market. As Services Index for January and concept, in Singapore at Bugis+. part of a shift in focus to its growing February 2018. While the combined Once it completes plans to open brands, Gap shut all of its stores retail sales (excluding motor vehicles) ten branches in Singapore by end- 2 data for the two months showed at and VivoCity while 2018, Say Chiizu will launch another an increase of 1.1% YoY due to Banana Republic closed outlets at outlet at Jewel @ Changi Airport in the expenditure on food retailers Paragon and MBS in February. In early-2019. (+14.0% YoY) and apparel & footwear the same month, American Eagle (+9.2% YoY), the bump could be Outfi tters also left the market with Some brands make Singapore driven by holiday spending and the closures of its Suntec City outlet their fi rst port of call when they improved visitor arrivals. Total tourist and VivoCity fl agship store. Later in begin expanding their presence in arrivals reached a record high of March, Cortina Holdings vacated all Southeast Asia’s retail market. In almost 3.05 million in both months, of its Orchard Road-facing watch 7.3% higher than a year ago. This January, Taiwanese bakery Kazo boutiques on the fi rst and second was led by the 21.7% and 12.3% opened its fi rst confectionary store level of , leaving 4,700 surge in arrivals from India and China in Singapore at . sq ft of space unoccupied. The retail respectively. Subsequently in March, Austrian chain retained only its Raymond Weil bakery Guschlbauer launched its fi rst Boutique on the third level of Wisma Market snapshot store for Southeast Asia at Waterway Atria. Following the infl ux of Japanese Point. After operating a pop-up retailers, other foreign brands at Casa Verde cafe in Singapore In the sea change disrupting the recognised potential and ventured Botanic Gardens for eight months, retail landscape, pop-up stores are still on the rise as retailers test new 1 Sales Index of Food & Beverage Services at Constant Mui Kee opened a permanent venue Prices (Seasonally Adjusted), Monthly. Updated as at 13 at Orchard Road. The new 50-seat markets with temporary stores while April 2018. restaurant will take over the space landlords try to fi ll vacancies. The 2 Retail Sales Index at Constant Prices (Seasonally vacated by Caveau Bar in Shaw pop-up concept used to be popular Adjusted), Monthly. Updated as at 13 April 2018.

savills.com.sg/research 02 Briefi ng | Singapore retail sector May 2018

among e-retailers trying to reach a tenants also help to drive footfall Although retail vacancies in some wider audience, but the model has traffi c in malls. Later this year, one of areas increased marginally, spaces since grown beyond online retailers the top Japanese cooking schools, in prime locations (stressed) within to encompass established fashion ABC Cooking Studio, will open its well-managed malls are still in high labels as well as luxury brands. second studio at Westgate. demand, leading to mild rental In general, pop-ups benefi t both increases. According to the Urban landlords and retailers. While the Rents and vacancy Redevelopment Authority (URA), the unique concept draws in crowds to From Q1/2015 to Q1/2018, island- retail rental index for Fringe Area malls, pop-ups also help to build wide retail stock expanded at a went up by 0.3 of a ppt QoQ, while buzz for brands. As the lease terms compounded annual growth rate Central Area (including Orchard are often shorter, pop-up stores (CAGR) of 0.8%, down from the Road) rose 0.2 of a ppt QoQ in are a more cost-effective option to 2.3% recorded for the period Q1/2018. After three consecutive create physical presence in premier Q1/2012 to Q1/2015. Owing to years of quarterly decline, the rental shopping belts like Orchard Road a lack of substantial new retail index for Central Region inched up and (MBS) where supply in Q1/2018, the island-wide 0.1 of a ppt. Nonetheless, some rents are on the high side. retail vacancy rate had a marginal increase of 0.1 of a ppt from last landlords may be fl exible on rents Some luxury brands have realised quarter to 7.5%. The slight increase in order to maintain their targeted that pop-up stores help to promote in vacancies was led by the addition tenant mix. As such, Savills prime marketing campaigns in different of 118,000 sq ft of net new stock as monthly rents in Orchard Road seasonal launches and can the occupied retail space remained stayed fl at at S$29.90 per sq ft in constantly surprise customers with unchanged in the quarter. Q1/2018. refreshing shopping experiences. Following the launch of Chanel’s GRAPH 2 pop-up store at MBS last year, Miu Prime retail rents, 2008 – Q1/2018 Miu opened a 1,205-sq ft disco- themed shop space at Paragon while Orchard Suburban 45 Fendi brought in its Fendi Kiosk to ION Orchard in February. 40 City fringe and suburban In contrast to footfall decline at some 35 shopping centres along Orchard

Road, suburban malls performed 30

better, buoyed by factors such S$ psf pm as convenience and proximity 25 to captive markets in perimeter neighbourhoods. For instance, the newly-expanded 20 enjoys high foot traffi c due to its accessibility to the MRT station 15 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 Q4 Q1 Q2 Q3 Q4 Q1 and bus interchange. After the 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 completion of enhancement works, its occupancy rate improved further, Source: Savills Research & Consultancy from 70.9% to 81.2%.3 GRAPH 3 Set to be a new dining destination Vacancy rate, 2011 – Q1/2018 with an array of different cuisines, Northpoint City has allotted 100 Orchard Downtown Core Outside Central Region out of 400 stores across six levels 16% for F&B use. In addition to the two 14% food courts - Bagus (South Wing) and Kopitiam (North Wing) - the mall 12% also offers a specialty food street, 10% “The Makan Town”, which occupies 40,000 sq ft in the South Wing’s 8% basement level. Korean pizza chain, 6% Pizza Maru, and Thai smoothie brand, Fruiturday, also opened their 4% fi rst stores in Singapore at Northpoint City. 2%

0%

In addition to a variety of F&B 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 choices, activity-driven anchor 2011 2012 2013 2014 2015 2016 2017 2018

3 Excluding 10 retail podium. Source: URA, Savills Research & Consultancy

savills.com.sg/research 03 Briefi ng | Singapore retail sector May 2018

The demand for suburban retail TABLE 1 space remained relatively strong Major projects in the pipeline, Q2/2018 – 2023 with a net take-up of 75,000 sq ft. Thus, the 0.2 of a ppt QoQ rise in the Estimated NLA Estimated suburban vacancy level was due to Development Location (sq ft) completion the opening of new complexes such as , which comprises Paya Lebar Road/ Paya Lebar Quarter 340,000 2018 a fi ve-storey retail podium with a Sims Avenue retail basement. Even so, suburban Additions/alterations to Beach Road/ malls, especially those owned by existing Raffl es Hotel and 234,000* 2018 North Bridge Road strong landlords, are still achieving shopping arcade healthy levels of occupancy and rent Additions/alterations to existing Century Square Tampines Central 5 200,000 2018 because of their steady shopper shopping complex traffi c and strong footfall. As a result, TripleOne Somerset Podium Somerset Road 88,500 2018/2019 Savills prime monthly rents in the AEI suburban area remained unchanged at S$28.80 per sq ft. Project Jewel Airport Boulevard 576,000 2019 Future supply According to URA’s data release, Funan North Bridge Road 324,000 2019 around 2.8 million sq ft of new retail supply will come online in 2018, Digital District Punggol Way 157,000* 2023 substantially more than the 1.8 million sq ft of retail stock completed Source: Company announcements, URA, Savills Research & Consultancy in 2017. Major completions on the *Savills estimation, based on an effi ciency rate of between 70% and 75%. horizon include Paya Lebar Quarter Mall, which is more than 40.0% From 2019 to 2022, over 2.9 and is a new mixed-use business pre-leased with anchor tenants such million sq ft of new retail supply is cluster for digital and cyber-security as FairPrice Finest supermarket, expected to enter the market. In industries. This development will Kopitiam foodcourt and Shaw 2019, Project Jewel and Funan will open progressively from 2023.  Theatres cinema. Other upcoming contribute the bulk of new supply. projects of note are refurbishments The other signifi cant complex under of existing malls like Century Square construction comes from the retail and TripleOne Somerset. segment of Punggol Digital District,

OUTLOOK The prospects for the market

According to the latest Monetary may not continue now that the impact of a weaker job market for Policy Statement released Lunar New Year period has passed, new job seekers and those affected by the Monetary Authority of especially if tourism spending eases. by structural unemployment. Singapore (MAS), Singapore’s However, we do not believe that economic growth for 2018 is Although the rate of recovery seems these new sources of employment forecast to be slightly above gradual, the retail rental market is can fully offset the issues arising from the middle of the range of 1.5% showing signs of bottoming out. an ageing population, budget air and 3.5%. Even though this We believe that there are a couple travel and online retailing which dilute year’s May Day Rally cited the of explanations for this. On the retail spending on a per sq ft basis. creation of new jobs along with consumption side, as mentioned in an increase in average wages last quarter’s briefi ng, disruptive or On the physical real estate side, in 2018, consumers are likely to augmentative business models (for thus far, the opening of new or stay cautious in their spending. example food delivery companies retrofi tted malls in suburban areas Firms are still retrenching in the that help boost F&B sales) are now often helps to boost rents in the short face of continuing disruption due paying good money to those who term. As the supply of reasonably to technological innovation and work for their networks. By injecting sized shopping malls island-wide on-going economic restructuring consumption power in to the market is restricted by government land related to labour cost issues. As with their cash burn models, these sales - more so for those clustered such, the rise in retail spending establishments have softened the around public transport points -

savills.com.sg/research 04 Briefi ng | Singapore retail sector May 2018

OUTLOOK The prospects for the market

urban economics would have when leases come up for renewal Development Location Estimated it that such malls would exhibit and rents go up or down. Thus, for completion a gravitational pull for shopper 2018, given that there are a number of Singapore Art Gallery St. Andrew's Road 2015 traffi c both within the immediate new or retrofi tted malls still to open, Jelebu Road 2015 catchment area and also because rents will likely be affected by these of the site’s accessibility by MRT. rollouts. Also, looking back to 2015, South Beach Beach Road 2015 With the constrained supply of retail supply was quite moderate, with Waterway Point Punggol Central 2015 malls in each subzone, very little Waterway Point the only large mall One KM Tanjong Katong Road 2015 primary data exists for retail and to open that year. Feedback from the F&B brands to model the potential ground indicates that the 371,800- affl icting the retail industry have only performance of their stores in sq ft Waterway Point has performed been patched over due to the current an upcoming development. exceptionally well, therefore, on a factors shoring up consumption and Therefore, retail and F&B brands weighted basis, any negative drag the ongoing need for retailers to plant face Hobson’s choice: stay out from renewal rents at other projects their fl ags in new malls. For 2018, we of the market or plant a fl ag in can be more than offset by this mall. expect suburban rents for shops in a newly minted retail complex, prime locations to climb 2.0% to 5.0% using it as a live test case and The problems besetting retailers YoY due to the “new” mall effect. For hoping that it remains cash fl ow and F&B operators, such as labour prime locations along Orchard Road, positive. From a third party’s costs, high rents, and competition we expect rents to stay fl at in spite of vantage point, the results from from regional shopping destinations the lack of new supply. these live experiments will only be and online merchants, have not gone known three years down the road away. The fundamental weaknesses

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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]

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