Friday, March 11, 2011

Rich pickings in Orchard but some lag behind

IT IS still fruitful to do business in Orchard, though the harvest may vary among malls and tenants.

One year after the two integrated resorts (IRs) opened - promising ample retail space and other distractions - Orchard Road is holding its own, even as the entry of new malls there posed questions of whether the pickings were large enough for all.

The Straits Times visited more than 30 malls in Orchard Road last week and found that most have healthy occupancy.

Analysts put the occupancy rate in the Orchard and Scotts area at between 95 per cent and 98 per cent, despite an additional 1.4 million sq ft of retail space from new entrants such as 313@Somerset, Ion Orchard and Orchard Central.

Industry watchers say competition from the new malls has helped revitalise the street, lower rents and draw new tenants.

Figures from property consultancy Jones Lang LaSalle show that, on average, newer malls like Ion Orchard and 313@Somerset command rents of $35 to $50 per sq ft (psf), while older ones like The Heeren and Ngee Ann City command $20 to $40 psf.

These rents, said analysts, are 8 per cent to 10 per cent lower than those in 2008, when the economy was booming.

Real estate consultancy CBRE's director of retail services, Ms Letty Lee, said: 'This has had the win-win effect of putting some pressure on prime retail rents in favour of tenants. At the same time, landlords are benefiting from the slew of luxury-brand retailers that have begun courting Orchard Road landlords and developers for a slice of the prime retail market.'

Mr Ong Kah Seng, senior manager of Asia-Pacific research at Cushman & Wakefield, said new malls have pushed existing ones to be 'pro-active with re-positioning plans, including accommodating new tenants to attract visitors'.

That is the big picture.

The view on the ground is that pickings in Orchard Road go only to those who are tough and fit. For a mall, its occupancy rate and the rent it charges depend heavily on its popularity among shoppers.

A Straits Times straw poll of 200 people found Ion Orchard, 313@Somerset and Ngee Ann City to be the top three most-visited malls. Coincidentally, Ion Orchard was also voted Best Shopping Centre in the AsiaOne People's Choice Awards 2010 yesterday, for the second year running.

The twin draws for shoppers seem to be a wide variety of products and proximity to MRT stations.

Mr Shah Alfi Shahni, 38, an assistant maintenance engineer, said: 'I dislike crowds and Ion Orchard is especially crowded, but I still go there as it is the one place that has everything.'

Retail analysts say some malls may not be as crowded as they are less accessible to MRT stations and their positioning may cater to a niche crowd. Paragon, for instance, draws well-heeled shoppers while The Heeren is targeted at the young.

But some businesses believe in hedging their bets with shops in several Orchard malls, saying it will strengthen brand awareness. One example is Charles & Keith, with four stores at 313@Somerset, Ion Orchard, Plaza Singapura and Wisma Atria.

Analysts say malls cannot count on an Orchard Road address alone. 'Operators need to be selective with their tenants, to make sure they offer more variety than in their suburban outlets. Successful malls in Orchard Road have flagship stores,' noted Mr Colin Tan, director of research and consultancy at real estate consultancy Chesterton Suntec International.

Malls should also be laid out simply and have fewer levels. 'A serious shopper wants to hop from one mall to another, but if there are too many levels or is too messy, it requires greater effort and shoppers just skip the mall,' he added.

A Straits Times check last week found more than 30 shop spaces empty or boarded up in Orchard Central. Chief among its problems, said Mr Tan, is a confusing layout with shops in blind corners.

A spokesman for a former tenant, hair and beauty salon Fox Studio, said it was initially drawn to Orchard Central as it was new.

'But business was slow. We saw about 10 to 15 customers a day, half of what we had when we were at Shaw Centre,' added the spokesman, noting the salon's obscure location on the fourth floor.

Fox Studio cut losses and moved to TripleOne Somerset in the middle of last year. Rent is 30 per cent higher but the salon gets more than 20 customers a day at its street-facing unit on the ground floor.

Mall operators are making efforts to stand out from the crowd. Wisma Atria recently announced a $31 million facade makeover, Orchard Central has a weekend flea market, and Plaza Singapura has opened a lounge area on its fourth floor with free Internet access, massage chairs and children's activities.

The Orchard Road Business Association said such moves will keep the street vibrant. Executive director Steven Goh said it is planning to put up more art installations and create more communal spaces on the street. 'The IR area has huge spaces for events, but we have a compact shopping street. Our position will remain strong,' he added.

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