Retail property rents may take hit this year amid outbreak: Study

People seen with masks in a shopping mall in Singapore last Friday. The coronavirus outbreak is likely to hit consumer spending hard as it deters shoppers from frequenting malls and restaurants. Real estate consultancy CBRE Research expects prime floor rents to decline in the wake of the outbreak. It added that the gap in mall and floor rents between secondary and prime retail properties will widen further.PHOTO: EPA-EFE

Landlords of retail property might have to take a hit on rents this year as the virus deters shoppers from frequenting malls and restaurants.

Real estate consultancy CBRE Research expects prime floor rents to decline in the wake of the outbreak.

It added that the gaps in mall and floor rents between secondary and prime retail properties will widen further.

Retail and food and beverage businesses will not need reminding that this may turn out to be yet another year of misery, with the coronavirus outbreak likely to hit consumer spending hard.

After posting the slowest pace of economic growth last year, the performance of Singapore’s economy is expected to remain muted at best this year.

“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,” CBRE said.

The Singapore Tourism Board predicted earlier last month a drop of up to 30 per cent in tourist arrivals.

The Chinese are Singapore’s largest source of tourists, accounting for about 20 per cent of international visitor arrivals last year.

Given the rather grim situation for the sector, CBRE expects a significant drop in the supply of retail space. The supply pipeline may shrink to 280,000 sq ft this year, from 1.06 million sq ft last year.

Last year’s supply was complemented by major completions, such as Funan Mall, PLQ Mall, Tekka Place and the redevelopment of Raffles Hotel Shopping Arcade.

The outlook of supply beyond this year is bleak as well. By 2023, the average supply may amount to about 250,000 sq ft a year, lower than the five-year historical average of 1.37 million sq ft a year.

On the demand side, retailers are expected to adopt a prudent approach, resulting in limited net growth of store numbers.

CBRE expects a dip of up to 2 per cent for prime rents this year, from $25.05 per sq ft a month last year.

There will be growing pressure on landlords to maintain rents and occupancy for their portfolio, particularly for malls owned by institutional investors.

Some malls and retailers have scheduled 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 marketing strategy support.

Mr Desmond Sim, head of research for Singapore and South-east Asia at CBRE, said: “While the economic outlook is challenging, the government stimulus packages may help to mitigate any immediate impact.”

The weak economic outlook will also weigh on other commercial properties such as offices and logistics, CBRE said.

Cautious business sentiment may lower capital spending.

Leasing demand in the office market could fall in traditional sectors of finance, insurance and technology industries, while the agile space sector may cut take-up.

More small-to mid-sized transactions of less than 30,000 sq ft are likely to emerge in the near term.

Vacancy levels are tipped to trend higher over the next few years, with 1.89 million sq ft of islandwide office supply scheduled for completion this year.

A subdued supply pipeline for logistics real estate may bolster occupancy and give the market time to absorb the leftover supply from previous years of saturated levels.

Still, vacancy is anticipated to hover around 12 per cent as most of the vacant stock comprises older buildings with lower specifications.

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