Singapore retail rental and price indices rise for second consecutive quarter in Q3

Retail rental and price indices grew 0.5% and 0.6% in Q3, respectively.

The recent URA statistics showed the Singapore retail property market recovery continues to gain traction. URA’s islandwide retail vacancy rates fell 0.3 percentage point q-o-q to 7.2% in 3Q23, the second straight quarter of decline, led by a 0.4 percentage point q-o-q fall in the vacancy rate in the Central Region to 8.8%, due to resilient occupier demand amid net space withdrawal. 

According to Angelia Phua, Consulting Director, Research and Consultancy at JLL Singapore, while the vacancy rate in the Outside Central Region edged up 0.2 percentage point q-o-q to 4.2% in 3Q23, the vacancy level is still tight and at the bottom end of the range of 4.2% to 8.5% over the five-year period (2015 to 2019) prior to the COVID-19 pandemic.

Here’s more from JLL: 

Backed by tightening vacancy rates, URA’s retail rental and price indices in the Central Region rose by 0.5% q-o-q and 0.6% q-o-q in 3Q23, respectively, marking the second consecutive quarter of increase in both indices.

 The sustained recovery in tourism in 2023, the healthy pipeline of meetings, incentives, conferences and exhibitions activities, and the resilient domestic consumer market continued to spur business expansion. This led to the continuous decline in the vacancy rate in the Central Region in 3Q23, amid tight supply conditions, and contributed to the sustained recovery in the retail rental index.

Over the first nine months in 2023, Singapore’s visitor arrivals reached approximately 10.1 million. The positive growth momentum is expected to continue in 4Q23, well on track to meet the Singapore Tourism Board’s projected range of 12 to 14 million arrivals for full-year 2023, and in 2024, on the back of growing traveller confidence and increasing flight connectivity and capacity.

The growing pre-commitment rates of upcoming retail developments, including One Holland Village and Pasir Ris Mall, are a testament to the healthy demand for retail space. 

In the capital markets, the rental growth in 3Q23 likely drove prices higher as investors continued to favour quality retail assets for the positive rent outlook and scarcity value. 

Looking ahead, Singapore’s low unemployment rate and wage growth amid a tight labour market and a 22% increase (as of June 2023) in foreign professionals in Singapore since the recent trough in December 2021 will continue to support domestic consumption. The recovery in international air travel and government-led tourism (leisure and business) infrastructure development and initiatives will also attract tourism.

This should continue to spur strategic business expansion, drive vacancy rates lower, amid a tight supply pipeline in the medium term, and support rent growth. We maintain our view that rents for prime floor space in JLL Research’s retail assets portfolio will grow by 1.5–2.5% y-o-y in 2023 and extend growth into 2024. 

Considering Singapore’s safe-haven status, the favourable supply-demand fundamentals of the retail property market and the scarcity of tradeable assets, rising rents should underpin prices of prime floor space in quality retail assets in 2023 and 2024, notwithstanding higher yield expectations in an elevated interest rate environment.