Here are key factors that will affect Singapore’s retail recovery

Growth is expected to slow for the rest of the year until 2023.

According to a Savills report, the pandemic induced reset could drive the travel and consumer sectors to continue recovering. This is despite the slowing global economy. 

“However, growth may slow for the rest of the year and also in 2023 due to challenges on the economic and inflation fronts. In the face of rising inflation and interest rate hikes, consumer spending growth is expected to be inhibited,” the report added.

Here’s more from Savills:

Although the continuing increase in visitor arrivals and resumption of business events could help to support retail sales levels, both local and foreign consumers are likely to cut back on discretionary spending amid the effects of increased inflation. 

Moreover, the possible effects of the GST increase from 2023 could also likely keep private consumption growth low next year. However, retail sales in Q4/2022 could be lifted by consumers buying forward, ahead of the revised GST rate. 

As landlords’ rental expectations rise, tenants operating at thin margins amid escalating operating costs could either be forced to cease their business or relocate to less prime locations. The vacated space will be backfilled by well-performing retailers or new entrants who are willing to match up to the new rental expectations. This could potentially alter the retail mix in the market as reshuffling of tenants continues, attracting different kinds of retailers. 

Following the opening of the Mercedes-EQ showroom at Great World City earlier this year, Porsche will set up a new showroom next year at the upcoming Guoco Midtown. Instead of operating from its existing centre at Leng Kee Road which will close by this year, the luxury carmaker is moving to a more accessible and greater visibility city-centre location. In their new city showroom, it will also create a new experience with an integrated F&B, co-working and community exhibition space. 

With the above, we forecast Prime Orchard retail rents to increase up to 3% YoY and for Prime Suburban by 2% YoY in 2022. For 2023, inflationary pressures will drive up retail sales revenues and raise conservancy and advertising costs. All this is expected to override the softer economic conditions and ultimately lift rents marginally.