Singapore retail vacancy creeping up with more tenants looking to exit

Business Times

a day ago

[SINGAPORE] Retail space vacancy across Singapore crept up in the first quarter as net take-up slowed and fresh supply hit the market, with leasing agents observing more tenants looking to pre-terminate their leases.
Islandwide, retail vacancy inched up to 6.8 per cent in Q1 2025 from 6.2 per cent in the previous quarter, based on government data.
Some 323,000 square feet (sq ft) of new space came on stream in Q1, a report by Savills Singapore showed. And net demand for retail spaces stood at a negative 129,000 sq ft in the period, reversing five quarters of positive take-up, as occupancy fell across most areas.
More tenants are seeking to end their leases early, noted Sulian Tan-Wijaya, executive director of retail and lifestyle at Savills Singapore.
'This would have pushed up vacancy rates if not for new entrants taking up their spaces. For less prime developments, it could take some time for vacant spaces to be let, due to current market conditions leading to many operators adopting a wait-and-see approach,' she added.
Ethan Hsu, head of retail at Knight Frank Singapore, said the slowdown in Singapore's retail and dining sectors has persisted for some time, driven by sustained inflationary pressures, a persistent labour crunch and weaker consumer demand.
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He added: 'Faced with rising costs, staffing shortages and heightened competition from new entrants, some retailers and food and beverage (F&B) operators are opting to exit the market to mitigate further losses.'
According to the Fair Tenancy Industry Committee, tenants may pre-terminate their leases if the business principal is insolvent or if they lose the distributorship or franchise rights, provided that the loss is not due to tenants' non-performance or breach of contract.
At least six months' notice is required, or a payment equivalent to six months' gross rent in lieu of notice. Landlords also require compensation equal to the security deposit amount.
Although foot traffic has improved in some Orchard Road malls, retailers continue to grapple with cost pressures and cautious consumer spending, a Jun 6 report by Savills Singapore showed.
'The inability to fully pass on costs is leading to lower margins. Online sales are also resulting in lower spending at physical stores,' it said.
It added that time is needed for the newly opened Punggol Coast Mall – which has more than 290,000 sq ft of retail area – and the revamped The Cathay to be absorbed into the market.
Retail sales fell in February and March after a strong start in January, buoyed by the Chinese New Year celebration and government consumption vouchers. Overall F&B sales dipped 3.2 per cent on year in March as consumers cut back, especially in restaurants.
Despite overall vacancy rising, rents held largely steady in Q1. Based on Savills' basket of retail properties, the average monthly rent in Orchard Road and suburban areas stayed flat at S$23.20 per square foot (psf) and S$14.70 psf, respectively.
Rents in prime malls along Orchard Road remain supported by limited supply. As a result, landlords are still able to negotiate for higher rents, Savills noted, with some observing healthy momentum for lease renewals, particularly among luxury retailers.
Data from the Urban Redevelopment Authority showed that central region retail rents declined 0.5 per cent in Q1, compared with a 0.6 per cent increase in the previous quarter.
Ervin Yeo, CapitaLand's commercial management chief executive and group chief strategy officer, pointed out in a LinkedIn post on Jun 9 that occupancy cost – the proportion of total rent paid relative to tenant sales – remained below 20 per cent for tenants at CapitaLand and Frasers malls.
'While rent level is a quantitative headline measure, occupancy cost is an efficiency measure and a proxy for rent affordability,' he said.
CapitaLand and Frasers are the two largest mall operators in Singapore, holding more than 20 malls between them in two real estate investment trusts (Reits), CapitaLand Integrated Commercial Trust (CICT) and Frasers Centrepoint Trust (FCT).
'For the two Reits, CICT (14 malls) and FCT (nine malls), 2024 occupancy costs were 17.1 per cent and 16 per cent, respectively,' Yeo said.
'This suggests that revenues of our tenants are at a sustainable level relative to their rents. In particular, the occupancy costs for the F&B trade category across CapitaLand malls (are) still less than 20 per cent, which is also lower than before Covid.'
He also noted that since 2018, the compound annual growth rate of CapitaLand mall tenant sales psf has been 1.9 per cent, while rental growth has been 0.7 per cent.
'Growth in sales has outpaced growth in rents, which makes sense because leases are usually locked in for some years while sales can turn on a dime. Retailers who had leases locked in would have enjoyed the strong post-Covid sales growth over the past couple years without a corresponding increase in fixed rent.'
For its first half ended March, FCT's retail portfolio recorded a committed occupancy of 99.5 per cent. Shopper traffic grew 1 per cent on year, and tenants' sales rose 3.3 per cent.
The average portfolio rental reversion for H1 FY2025 was 9 per cent, on an average-to-average basis. The landlord also added 41 new brands to its portfolio, including China lifestyle retail brand KKV and restaurant chain Shu Da Xia Hotpot.
Commenting on Yeo's LinkedIn post, Erwin Oei, chief operating officer of Metro's retail arm, said that margins vary widely across product categories. 'Luxury fashion, mid-tier beauty, or even multi-concept retail all operate with vastly different margin structures and sales velocities. Ultimately, it is the margin that sustains the occupancy cost, not just the topline.'
He added: 'Flexible rent ramp-ups can encourage bold, footfall-driving concepts to take root.'
' Rapid expansion that has led to just as rapid closures in recent years cannot possibly be healthy, when it has also led to a wastage of funds and material, especially when new fit-outs and equipment are abandoned when operations prove to be financially unviable. '
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Ethan Hsu, head of retail at Knight Frank Singapore
Alan Cheong, Savills Singapore's executive director of research and consultancy, expects more tenant turnover in malls this year as underperforming retailers either ride out their leases or exit early if they cannot keep up with costs.
'While prime spaces are still being snapped up quickly, the rate of closures could soon outpace new openings,' he said.
Store closures hit a 19-year high of 3,047 in 2024. While openings still outpace closures, an earlier Knight Frank report characterised Singapore's F&B scene as 'overweight', saying: 'The dining scene appears to be reaching oversupplied levels.'
'Rapid expansion that has led to just as rapid closures in recent years cannot possibly be healthy, when it has also led to a wastage of funds and material, especially when new fit-outs and equipment are abandoned when operations prove to be financially unviable,' Knight Frank's Hsu said.
He suggested limiting the number of F&B licences issued within certain geographical boundaries, or capping the percentage of net lettable area allocated for F&B and non-F&B units in a mall to a 'reasonable stakeholder-reviewed ratio'.
With retail supply limited at under 400,000 sq ft of net lettable area each year, rents and occupancy are likely to be supported over the next two years, said Savills.
A larger wave of supply – more than 1.2 million sq ft of net lettable area – is expected from 2028, led by developments such as the expansion of Marina Bay Sands.
Savills expects growth in Orchard Road rents to hit the upper end of its 1 to 2 per cent forecast range this year, and suburban rents to come in around the lower end of the projected span.