Monday, April 22, 2013

Prime retail resale prices post highest rise in 5 years

The Straits Times  |  April 18, 2013

Resale prices of prime retail space posted the strongest quarterly jump in slightly over five years in the first quarter, consultancy DTZ said yesterday.

Pointing to increased interest from investors, DTZ said prices for mall shops with large storefronts and heavy shopper traffic are likely to continue rising.

It added that rents for such prime shops have dipped slightly quarter on quarter, though retailers The Straits Times spoke to said they had not seen a dip in rents yet as their leases were signed before the decline.

Prime retail space in suburban areas saw the biggest surge in resale prices in the January-March period.

Average capital values of resale shop units in those areas were 7.7 per cent higher than in the preceding quarter.

In the Orchard Road and Scotts Road area, and other city areas, the average capital value of prime resale shop units climbed 5.8 per cent and 6.7 per cent respectively from the preceding October-December quarter.

Overall, the increase in resale values is the largest since the fourth quarter of 2007, DTZ said.

Prices were pushed up as more investors turned to shop units after a seventh round of cooling measures, which took effect on Jan 12, imposed curbs on residential and industrial property.

Another factor was cheap and abundant liquidity in the market owing to low interest rates.

Resale prices may go up even further if investors decide to focus on the shop resale market instead of the new sales market after government guidelines last month that put a limit on the number of shoebox shop units in malls, said DTZ Singapore research head Lee Lay Keng.

The Urban Redevelopment Authority set the minimum average size for shop units in malls at 50 sq m or 538 sq ft, in a move that took effect on March 27.

"Barring any government intervention, we expect capital values of retail units to continue their uptrend and result in further yield compression," Ms Lee said.

Adding to the yield compression for investors is the fact that rents dipped slightly in the first quarter from the preceding three months.

Rental declines were the smallest for suburban prime retail space, which registered a 0.2 per cent drop quarter on quarter.

In the Orchard Road and Scotts Road area, prime retail rents slid 0.3 per cent from the preceding quarter.

The largest drop was in other city areas, where rents of prime shop space in the first quarter eased 0.7 per cent from October through December last year.

But despite the marginal decline in rents, the operating environment for retailers is only going to get tougher, said DTZ director of retail Anna Lee, citing the pangs of economic restructuring.

One piece of good news for retailers, though, is that landlords are expected to be more open to rent negotiations amid the substantial supply of retail units in the pipeline, she added.

Mr Edlan Chua, chief operating officer of Paradise Group, said the restaurant group has managed to negotiate "better rents" over the past one to two years.

Paradise Group has 30 restaurants in Singapore, of which around 70 per cent are in suburban areas.

"It all boils down to how much the landlord wants you."

Ms Linda Loke, director of food and beverage at restaurant Si Chuan Dou Hua, said the restaurant has been paying the same rent for the past two years or so since the lease was for three years, but she hoped to secure lower rents when the contract is up for renewal at the end of this year.

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

Senior Sales Director
DTZ Property Network Pte Ltd (L3007960A)

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