Retail

SHIFT IN RETAIL CONSUMPTION, SUPPORTED BY DOMESTIC CONSUMERS

The end of 2020 saw greater positivity in the retail market with shopper traffic recovering to near pre-pandemic levels. The decline in retail sales has also moderated to -2.5% y-o-y in Nov 2020, from about -9.0% to -12.0% in the past three months as consumers readjusted to the pandemic and increased their spending levels.

That said, the retail sector still faces key risks in the near term. The economy continues to recover, while uncertainty in employment continues to linger. Though international travel could potentially resume with vaccination programmes being progressively rolled out in major countries, a potential resurgence in COVID-19 infections would put the brakes on travel resumption.

With tighter controls on leisure tourism, the market will be supported by a higher consumption of retail goods and services domestically. In 2018, it was reported that outbound tourism dollars by Singaporeans accounted for S$34 bn in tourism-related spending overseas. With Singaporeans unable to travel, there could potentially be a rechannelling of outbound tourism dollars back into the system.

THE BALANCE BETWEEN ONLINE & OFFLINE

2020 witnessed a strong shift from offline to online retail. During the pandemic, consumers became more accustomed to the ease and experience with online retail. These new habits are likely to stick as there will be greater motivation and fewer perceived barriers to technology.

However, the pandemic-led e-commerce growth surged in Q2 2020 and has started to stabilise. It is expected that 2021 will see milder y-o-y growth in online retail sales due to the high base effect experienced in the previous year.

IMPLICATIONS TO REAL ESTATE

Both retailers and landlords will need to rethink their business strategies, such as dedicating more investments in social media/commerce and technology to enhance and integrate the consumer experience both online and in physical stores.

LEASING MOMENTUM TO PICK UP

Leasing demand is expected to pick up over the course of 2021. Store expansions and openings are expected to go ahead as retailers re-adapt to the new retail environment post COVID-19. However, the rate of expansion will be limited. Furthermore, challenges within the retail sector remain, thus closures and consolidations of underperforming stores are set to be a key theme in 2021.

QUALITY, NOT QUANTITY

The profile of today’s consumers has evolved. With travel restrictions at bay, there will be more consumers who are willing to pay a premium for higher quality and greater variety. Consumers are also becoming more invested on their personal health and self care. CBRE Research believes that leasing demand will continue to be driven by F&B and essential sectors like supermarkets and beauty and wellness, though their concepts will have to be unique yet relevant in today’s context.

The online to offline trend is expected to continue, supported by local fashion brands gaining popularity through social media platforms. Pop-up stores are likely to see a comeback. However, as compared to earlier trends, we are seeing more committing to longer tenures as retailers are redirecting their focus to create brand differentiation by investing into better quality fit-outs to curate a specialised store experience.

IMPLICATIONS TO REAL ESTATE

The overall trend of portfolio rationalisation is set to continue, leading to rising space availability. This will provide both existing and new retailers to rethink their store locations, while reducing rental expenses across their portfolio. Savings incurred can be redirected into enhancing the quality of their key flagship stores.

TWO-TIER MARKET PRESENTS OPPORTUNITIES

After falling by 8.6% y-o-y in 2020, average prime retail rents are expected to stabilise over the course of 2021. Recovery of the retail market is expected to be long drawn, given the risks and uncertainties that still linger, though it will be mitigated by the moderate level of upcoming supply.

The suburban market will continue to be the most resilient; while the fringe and CBD locations, which experienced the highest weakness in 2020, are likely to see a slight recovery as footfall from the working population improves. With headwinds in the tourism sector to weigh on the near-term outlook of the sector, the rental gap between Orchard Road and suburban market could narrow further.

The two-tier market between prime and secondary retail spaces is expected to widen, although rental corrections and vacancies for the secondary locations and floors could present opportunities. Underperforming locations which suffer from higher vacancies could benefit from potential rental growth if landlords strategically upgrade their assets or reposition their tenant mix to be in line with changing consumption trends. Lower rents in secondary floors and corridors of prime locations could initiate some upgrading demand from retailers looking to expand or relocate.

With landlords forced to adopt a flexible stance towards rents and terms, tenants may be geared with a stronger bargaining power.

IMPLICATIONS TO REAL ESTATE

Rather than focusing purely on rents, landlords and tenants should establish better synergies in the aspect of flexibility in lease negotiations and terms.