Singapore retail vacancy hits 7-year low of 7.1% in Q4 2022

The lowest vacancy rate was 7.0% in Q3 2015.

According to Savills Research's Q4 2022 Retail Briefing, island-wide retail vacancy fell for the third consecutive quarter to 7.1% in Q4 2022, marking the lowest vacancy rate in seven years since Q3 2015, when the rate was 7.0%.

The following factors contributed to lower vacancy rates: continual increase in retail sales, higher footfall to shopping malls, as well as improvement in visitor arrivals led to greater confidence amongst retailers 

A significant decrease in vacancy rates was recorded in the Outside Central Region, which fell 1.1 percentage points (ppt) to 4.0%. Additionally, vacancy rates in the Central Region also decreased, falling by 0.6 of a ppt to 8.7%.

The Central Region's Downtown Core and Orchard Planning Areas' vacancy rates continued to improve, as travel restrictions eased, leading to increased visitor arrivals in Singapore. However, the declining vacancy rates may indicate that landlords are prioritizing improving mall occupancy rather than having high rental expectations.

As such, the Urban Redevelopment Authority's retail rental index for the Central Region declined for the fifth consecutive quarter by a larger 1.1% quarter-on-quarter (QoQ) in Q4 2022, compared to the 0.4% decline in Q3 2022. Retail rents in the Central Region contracted 2.4% for the entire year of 2022. This marked the third year of decline, but the magnitude of the decline was lower than the 6.8% in 2021 and 14.7% in 2020.

Nonetheless, prime retail space remains highly sought after by retailers, and landlords have higher rental expectations for such spaces. In Q4 2022, Savills monthly prime rents in the Orchard Area and Suburban Area increased for the second consecutive quarter by 0.9% and 0.5% QoQ, respectively, to S$21.50 psf and S$23.30 psf. In 2022, both segments recorded growth of 2.8% and 2.3% year-on-year (YoY), respectively, reversing the decline of previous years. 

F&B SALES

In Q4 2022, F&B sales rose on a YoY basis due to the relaxation of dine-in restrictions compared to a year ago when there was still the Stabilisation Phase in force. The F&B sector's overall annual revenue growth of 19.5% in 2022, which was much faster than the 2.7% growth in 2021.

MARKET OUTLOOK 

Despite challenges posed by the pandemic and greater economic challenges, Savills Research forecasts a rise in prime Orchard Road Mall and prime Suburban Mall rents by 1% to 2% and 2% to 3% respectively for 2023.

Alan Cheong, Executive Head of Research and Consultancy says: “The industry has weathered the darkest days and there are signs of renewed confidence among retailers and F&B operators in 2023. While economic challenges remain, their resilience, nurtured by the torturous days of the pandemic, may help them overcome the challenges ahead.”

Marcus Loo, CEO of Savills Singapore, adds: “A new retail landscape is emerging, where brick-and-mortar stores and online experiences are integrated. While it may take some time before we can have a firmer view of how this hybrid retail model will shape the retail mix within malls, it is evident that the industry has weathered the worst of the storm. The focus will now be on adapting to new customer expectations and enhancing the shopping experience both online and offline, as retailers continue to navigate the changing landscape.”