Mall rents in Singapore’s famed Orchard Road shopping area inched up by 1.3 percent in the third quarter from the preceding three months on the back of a rebound in travel and the ongoing rejuvenation in the area.
Average passing rents for mall space in the Orchard area rose to S$22.40 ($17) per square foot per month for the July to September period, from S$22.10 three months earlier, but were still 24 percent below pre-pandemic levels, according to a report released on Monday by property consultancy Savills.
“Retail rents on Orchard Road stand to benefit most from the strong tourist arrivals expected in 2024,” said Alan Cheong, an executive director at Savills Research. Cheong expects that by the end of this year retail rents will have risen by as much as 6 percent, compared to the 2.8 percent increase last year over 2020 levels, as “tourist arrivals start to return in force.”
Along with the travel rebound, the famed shopping district has been attracting fresh attention from investors placing their bets on a government-backed rejuvenation of the area. Just last month mainland tycoon Du Shuanghua’s Bright Ruby Resources agreed to acquire the Far East Shopping Centre on Orchard Road for a reported S$908 million ($667 million) as the shopping strip becomes a hub for deals.
The third quarter rise in Orchard area mall rents was nearly on par with the 1.4 percent increase recorded in the preceding three months, with the continuing upswing supported by tightening vacancy, which fell to 12.1 percent along the shopping strip by the end of September. That figure was down from 13.2 percent three months earlier, according to the property agency.
“In tandem with improving business sentiments alongside the uptick in tourism arrivals, market and leasing sentiments improved in general,” Savills said “The popular tourist destinations are likely to have benefited from the spillover effects of inbound travellers, resulting in more significant improvement in rents in the Central Area where the Orchard Area and Marina Bay Area are in.”
Availability of mall space continued to tighten across Singapore in the third quarter, with vacancy islandwide dipping to 7.2 percent from 7.5 percent three months earlier, after some 248,000 square feet (23,040 square metres) of retail space were removed from the market for redevelopment and asset enhancement projects.
Visitor arrivals in Singapore totalled 3.9 million last quarter, reaching 87 percent of the 4.5 million average quarterly arrivals seen from 2015 to 2019, Savills said, citing government statistics. Retail and F&B sales continued to rise in the third quarter as well, although at a slower pace than was recorded in the preceding three months.
After rising by 2.8 percent in 2022, retail rents in the Orchard area are expected to climb by around 5 to 6 percent for the full 12 months of 2023 before slowing to 3 to 5 percent growth next year, Savills predicts.
Investors Ride Orchard Facelift
While it has yet to play into rents along the retail strip, there has also been a rebound in interest in the Orchard area from developers and investors, with a number of projects announced there in the last three months.
In addition to Bright Ruby’s October deal, a joint venture between TE Capital Partners and LaSalle Investment Management, which received minority backing from SGX-listed Metro Holdings, last week agreed to acquire the VisionCrest Commercial in the Orchard area for S$450 million.
In acquiring VisionCrest Commercial, TE Capital managing director Emilia Teo said she expects the office and retail building to benefit from a government plan to transform the Orchard Road area into a green belt in the city centre.
In August, Ong Beng Seng’s Hotel Properties Ltd (HPL) secured provisional approval to transform its Forum mall, the Voco Orchard Singapore hotel and the HPL House commercial block on Orchard Road into a larger, 1.2 million square foot mixed-use development.
“Where HPL’s projects and Far East Shopping Centre are located is presently deemed a very mature stretch of Orchard Road. Their redevelopment would revitalise the micro-location to allow them to command higher rents,” Savills Cheong told Mingtiandi on Monday.