Monday, March 25, 2013

Orchard Road rents on the rise


Key reasons: Mall revamps, lease renewals, limited quality space
The Straits Times  |   Mar 21, 2013

Rents on Singapore's most famous shopping street have gone up for the first time since late 2011 due to major malls being refurbished, an onslaught of lease renewals and a limited stock of quality space.

Prime Orchard Road retail space cost an average of $32.20 per sq ft (psf) in the first quarter. It was first time the figure had risen since the last three months of 2011, when it was $31.60 psf.

These new levels are expected to remain for the rest of the year despite more retail space coming on the market and news of retailers shutting down in the light of the recent labour crunch, said CBRE research associate director Desmond Sim.

The new Orchardgateway mall will open by the end of the year and The Heeren will reopen by the third quarter, adding a total of 328,000 sq ft of retail space to the street.

"Refurbishments by major Orchard Road malls pushed up rents," said Mr Sim.

He added that Ion Orchard, Orchard Central and 313@Somerset opened in 2009 - meaning shop leases, which typically last three years, are now coming to an end.

"Rents went up when these new leases were signed, and there is also a limited supply of quality Orchard Road space."

Mr Sim pointed out that malls such as Ion inked leases with Victoria's Secret and H&M last year.

"These large brands are also pushing rents up," he added.

Wisma Atria's revamped premises and The Atrium, an extension of Plaza Singapura, were both completed last year.

The rise in rents here worried several industry players at the World Retail Congress Asia Pacific, held in Singapore for the first time, at Marina Bay Sands this week.

Singapore Retailers Association president Jannie Chan, who was present at the start of the two-day event, which ends today, said that rent makes up 50 per cent of total operating costs for retailers here now - up from 35 per cent in the past.

"Worse still, rental has been going up 5 to 10 per cent with each lease renewal," she said yesterday.

The founder of watch chain HourGlass put the increases down to three factors: Singapore's growing real estate investment trust market, major brands with deep pockets and entrepreneurs agreeing to high rents, then shutting down.

Market watchers estimate that a typical ground-level store in an Orchard Road mall which directly faces the street can cost $50 psf to $60 psf a month.

For a store of about 600 sq ft, monthly rent can add up to about $33,000, they said.

Overall average rents at Wisma Atria, which completed its refurbishment in July, have gone up by 33 per cent since before the revamp in mid-2011.

They are also higher due to a change in the mix of tenants, said a spokesman for YTL Starhill Global Reit Management, which manages the mall.

Mr R. Dhinakaran, managing director of Jay Gee Melwani Group, said rents for some of his 30 Orchard Road stores have gone up about 15 per cent in the last renewal. "It's very, very tough," said the franchise holder of brands such as Levi's and Aldo.

"Rents make up 40 to 60 per cent of total cost of operation here. In countries like Malaysia, it is 20 to 40 per cent."

Mr Dhinakaran said more brand owners such as Hermes and H&M are opening here without the help of franchisers.

"They can afford to pay high rents for premium locations."

Average rents in prime Orchard Road, however, are still some way below the peak of $36.80 psf in the third quarter of 2008, when retail space was in short supply.


Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C

Senior Sales Director
DTZ Property Network Pte Ltd (L3007960A)
Email: marshe_inc@yahoo.com.sg

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