As retail conditions remain challenging, vacancy rates in other city areas and Orchard retail have edged up to a record high in Q2 2021 (Chart II). Driving the rise in vacancy rates was a spate of notable market exits. The latest being karaoke chain, Manekineko, and Australian fashion chain, TEMT, which had closed all their stores in Singapore. It is estimated that about 10 to 20 percent of customer-facing businesses have shut since Singapore went into a heightened alert in May this year due to a surge in community infections.1
On the back of higher vacant retail spaces, turnkey retail spaces might be one of the win-win solutions for both retailers and landlords to forge ahead.
What is Turnkey Retail?
Turnkey retail is an approach where landlords provide move-in ready spaces, reducing the hassle for tenants to set up brick-and-mortar stores. A turnkey retail space can be as simple as a clean white box or a fully built-out store with lighting, product displays, mapped-out customer journey, technology and even staff can be provided.
Key attributes of turnkey retail spaces:
- Flexible lease term
- Simplified takeover and start-up processes
- Landlords provide design and build services
- Modular fixtures can be provided and reused
- Easily adaptable to the needs of different tenants
Examples of possible convertible turnkey designs in Singapore:
* Images are only for illustration purposes
Source: Cushman & Wakefield, stock images
Benefits of Turnkey Retail
The benefits for turnkey retail are two-fold.
Turnkey retail can enable landlords to maximize marketing, fill vacancies and draw a steady flow of traffic to their destination as consumers continue to seek new shopping experiences. For retailers, it can provide a simplified, low-risk point-of-entry into physical retail space.
This collaborative approach supports the creation of an innovative yet impactful retailing space through the exchange of knowledge and sharing of resources between the landlord and tenant. Turnkey retail will help them to lower risks and stay relevant, especially as the retail landscape reels from the impact of Covid-19.
Main advantages for retailers
- Reduce time, budget and resources required to launch a physical store
- Lower business risks with higher adaptability and agility
- Greater focus on sales generation as issues such as coordination and hiring are smoothed
- Locate with complementary brands to drive customer acquisition and economies of scale
- Test the market in terms of location, offerings, customer profile and more
A point of entry for new and digital-native brands
A turnkey approach can be viable point-of-entry options for new-to-market, start-up and digital native retailers that lack the experience or capacity to open their brick-and-mortar store. Turnkey spaces allow retailers to easily and quickly test their concepts, develop their product and engage their customers. With high levels of uncertainty due to the pandemic, providing turnkey retail spaces would allow lower initial capital expenditure (for retailers), and provides a lower risk approach for retailers.
Advantages for Landlords
Boosting footfall and demand for spaces
Landlords benefit as new or online-first brands are incentivised to take up physical spaces through turnkey retail options. These brands could be carrying complementary or emerging offerings that rejuvenate a retail site and flaunt a differentiated shopping experience. Given that landlords must compete in Singapore’s relatively small market, turnkey retail could lead to a “one-stop shop” approach that help to reduce dependence on individual tenants to bring in footfall and drive demand. Moreover, the current movement of retail tenants could be opportune for landlords to attract new and digital native brands. Since third quarter last year, over 62 new-to-market brands or digital native brands have leased physical spaces here.
Bolstering occupancy and leasing income
Turnkey spaces allow the interim take up of vacant spaces while waiting for longer lease tenants. A turnkey tenant can potentially be converted to long-term when the tenant-landlord relationship is forged. Coupled with its increased appeal due to lower upfront costs for tenants, turnkey retail may spur leasing activities and strengthen landlords’ ability to hold firm or even increase rents.
Key Considerations in Turnkey Retail
Not suitable for all
Retailers that seek to craft a distinct identity for brand building are also unlikely to pick turnkey spaces due to the more generic look and feel as compared to bespoke spaces with elaborate visual merchandising. Trades that are less suitable to go for turnkey retail tend to have more complex or niche requirements.
Investments by the landlord
At the core of a successful turnkey space is a detailed market study on the retail site to define the turnkey offering as well as determine the mode of tenant collaboration. First and foremost, the size, location, shoppers’ profile and neighbouring tenants should be considered in order to establish the types of retailers or brands that will fit into the mix. Thereafter, landlords will brainstorm what might attract these types of tenants to ascertain the extent of fit out and other leasing details.
Paving the Way to Turnkey Retail
The approach to turnkey spaces will vary according to the amount of effort and capital that landlords are willing to put in. At the lower end of the spectrum, a space could be painted clean and basic to help potential tenants envision how the space could be utilized, while landlords work with current tenants to retain items that could be reused by the next turnkey tenant.
At the next level, landlords can equip tenants with infrastructure and digital services for omnichannel retail. Order fulfilment spaces as well as click-and-collect services can be provided, creating a holistic online-offline retail experience. Retailers could also be provided immersive technologies and analytics tools to manage customers proactively. These technologies are advancing from good-to-haves to must-haves, amid accelerated changes in consumer behaviour and intensifying competition.
With the pandemic highlighting the need for contactless solutions, a turnkey retail space could further evolve to an unmanned, automated space that integrates online and offline sales channels. One example would be e-kiosks that are designed for touchless, on-the-go purchases. Such turnkey solutions enable cost-efficiencies with their self-service features.
As landlords and retailers navigate through an increasingly challenging retail landscape, turnkey retail could be the win-win solution to revitalise a shopping destination and bolster footfalls.