Savills Research shares that retail rental growth is showing further signs of moderating in the second quarter, as economic uncertainty and weak retail sales have landlords focusing on occupancy rates while keeping their rental expectations realistic.

Average monthly rents in the Orchard Area rose by 0.6% quarter-on-quarter (QoQ) to S$23.00 per square foot (psf). The average retail passing rent in Savills' basket of retail properties in the Suburban Area remained unchanged at S$14.70 psf in Q2.

The island wide vacancy rate for retail space slipped marginally to 6.6% in Q2, compared to 6.7% in Q1. This was attributed to an increase in demand (495,000 sq ft), which outpaced the increase in supply (463,000 sq ft) in Q2. Savills Research notes that the net demand in the second quarter was significantly higher than the 86,000 sq ft in the first quarter. This is because of the improvement in the absorption rate across all regions, except in the Orchard Area where there was no net absorption in Q2. Owing to a healthy pre-commitment rate in the newly opened Paris Ris Mall, the Suburban Area posted the highest net demand over the last five quarters and saw a marginal decrease of -0.1 percentage points (ppt) QoQ to 4.6%.

Savills projects that annual new completions for the next three years will remain below the total completions of 2024, averaging 578,000 sq ft (NLA) per year from 2025 to 2027. This is almost half the annual average supply of 1.1 million sq ft (NLA) between 2015 to 2019, before the pandemic struck. The next major insertion of supply is expected to be completed from 2028, with a bulk of 2.9 million sq ft (NLA) of new retail space coming onto the market. (see Table 1)

Alan Cheong, Executive Director, Research & Consultancy, Savills Singapore comments, “We expect the recovery in tourism to continue till end of the year, with higher visitor arrivals and tourism receipts from 2023. Visitors from China are still below pre-pandemic levels – 80% of the first half of 2019 visited Singapore in the first half of this year. Despite this, most the of consumption in Singapore is still driven by domestic spending.

While the supply pipeline may be tight in the near term and tourism recovery expected to continue, we foresee rental growth to continue to decelerate for the rest of the year. Labour supply issues and rising operating costs are returning to dog the industry. Due to the slower rental growth in the first half of the year, we are revising our rental forecast for Orchard Area down from 3% - 5% to 3% - 4% year-on-year (YoY) in 2024. The Suburban Area may seem resilient with the healthy take-up in the new Pasir Ris Mall, but we project average rents in Suburban Area to stay flat this year.”

Sulian Tan-Wijaya, Executive Director, Retail & Lifestyle, Savills Singapore says, “Singapore remains an attractive regional retail hub for new brands. Much of the demand for retail spaces are coming from overseas retailers and F&B operators looking to launch their brands in the region.  Among the local players, we still see healthy demand from the wellness and leisure sectors.”

Download > Singapore Retail Briefing Q2 2024 here.

For further information, please contact Alan Cheong, Executive Director, Research & Consultancy, Savills Singapore and Sulian Tan-Wijaya, Executive Director, Retail & Lifestyle, Savills Singapore as the details below.