2019 was a year of muted retail sales amid subdued economic conditions and consumer sentiments (Figure 9), which have led to weaker discretionary
domestic spending. Global economic uncertainties have also caused tourists to be more cautious with their spending.
With the outbreak of COVID-19, the temporary ban on travellers coming from mainland China will likely take a toll on sales of luxury retail given an
expected drop in tourist arrivals. This is particularly so as the Chinese is Singapore’s largest source of tourists, who accounted for about 20.0% of
international visitor arrivals in 2019. Attendance for events will also be impacted and have an effect on the MICE industry.
Already, the Singapore Tourism Board expects visitor arrivals to fall by 25.0% to 30.0%.
E-COMMERCE TO BENEFIT
Consumption growth will continue to weaken in 2020 on the back of increasingly uncertain economic prospects. In light of the COVID-19 outbreak, the economic growth forecast has been downgraded to between -0.5% and 1.5%, indicating a possible recession if severity of the outbreak intensifies.
The retail market will continue to struggle. As consumers are likely to reduce their time spent outdoors; the entertainment, services and F&B sectors will
likely be the hardest hit. Department stores and the fashion segments will also suffer due to the drop in footfall (Figure 10).
On the other hand, domestic spending is still expected to remain resilient. Segments such as supermarkets, convenience stores and medical goods segments are expected to perform better during this period. E-commerce is also expected to increase as it allows for contactless shopping. Online grocery, particularly fresh produce and health and personal care products, are expected to see an increase in demand.
Full year supply for 2019 amounted to 1.06 mil sq. ft. with major completions such as Funan, PLQ Mall, Tekka Place and the redevelopment of Raffles Hotel
Shopping Arcade (Figure 11).
In 2020, the supply pipeline is expected to drop significantly to 0.28 mil sq. ft. The 4-year average supply amounted to about 0.25 mil sq. ft. per annum
from 2020 to 2023, significantly lower than the 5-year historical average of 1.37 mil sq. ft. per annum.
The suburban and Fringe areas will account for the bulk of future supply at 47.8% and 29.6% respectively. Several upcoming developments will be redevelopment projects or from mixed-use projects with retail podiums.
The limited future supply will commensurate with the lower level of demand. Furthermore, there still exists a large amount of vacant stock in the market. As
at Q4 2019, total private retail stock stands at 50.19 mil sq. ft., including 4.33 mil sq. ft. of vacant stock.
RETAILERS TO TAKE A MORE PRUDENT APPROACH
Against this backdrop, demand for physical retail space will still be present, though retailers are expected to adopt a prudent approach amid growing economic uncertainty. This will likely result in limited net growth of store numbers.
Consolidation activity is also expected to persist into 2020 as retailers re-evaluate their store performance. This is particularly so for underperforming retailers who fail to keep up with the speed of changing consumer preferences or lack the initiative to evolve accordingly as e-commerce and technology
FIGURE 11: SUPPLY PIPELINE
RENTAL PRESSURE REMAINS,
TWO-TIER MARKET WIDENS FURTHER
LANDLORDS TO BE MORE PROACTIVE
Despite the more muted retail sales environment, prime rents remained relatively resilient in 2019, with the islandwide prime rents by CBRE Research
staying unchanged at $25.05 psf/mth (Figure 12). This has been achieved with some landlords offering incentives such as rent-free periods or introducing pop-up stores. Vacancies for quality assets that are well-located and well-managed continued to be tight.
Moving forward, there will be growing pressure for landlords to maintain rents and occupancy for their portfolio, particularly for malls owned by institutional owners. Some malls and retailers have been scheduled for shorter operating hours and more are expected to follow suit. During this period, landlords will be more proactive in offering relief such as rental rebates in a bid to maintain headline rents, along with additional marketing strategy support. Thus, the impact on rents will only be the last resort.
In light of the COVID-19 outbreak, CBRE Research expects a dip of up to 2.0% for prime islandwide rents in 2020 with further pressure on secondary
malls and floors (Figure 12). As such, the gap between the two tiers of prime and secondary malls/floors is expected to widen further.
Tourism-reliant submarkets such as Orchard and the Fringe areas are more likely to be affected while suburban malls in densely populated areas will
continue to benefit from resilient footfall and spending.