Retail Sales Growth to Moderate
Fueled by the release of pent-up demand from consumers and returning tourists, total retail sales grew 11.6% as of November 2022 YTD and exceeded the pre-pandemic (Jan-Nov 2019) retail sales level by 5.7%. However, retail sale growth momentum is expected to slow in 2023. Consumers might have brought forward their expense for big ticket items to 2022 due to the GST hike and consumer spending could shrink with rising interest rates, prices and a weaker economic outlook. Discretionary retail sectors such as department stores and fashion, which are sensitive to economic cycles may see higher downward pressure on sales.
Rents Remain Rising Amidst Tourism Recovery
Islandwide prime retail rents continued to climb 0.5% q-o-q in Q4 2022 as footfall recovers with a comeback of roadshows and events over the festive period. Orchard, Other City Areas and Suburban prime retail rents increased 0.6%, 0.5% and 0.5% q-o-q respectively driven by higher rental growths at better located malls. For the whole of 2022, prime retail rents in Orchard, Other City Areas and Suburban grew 4.1%, 3.3% and 3.7% y-o-y respectively. The Orchard retail market’s outperformance is underpinned by Singapore’s tourism recovery and demand from luxury retail sector. With global travel picking up pace, visitor arrivals has risen to 5.4 million visitors as of Nov 2022 YTD, up from only 0.3 million visitors for the whole of 2021.
In Orchard, Saint Laurent and Salvatore Ferragamo were amongst the many current luxury brands that have expanded/relocated in Q4 2022. A slew of store openings has also been observed for new-to-market brands, especially those in the watch and jewelry category which has performed well in terms of tenant sales. Japan bridal jewelry brand I-Primo have debuted at ION Orchard in Q4 2022, following Swiss watch brand Norqain’s opening of its Asia’s first boutique at Wisma Atria in the previous quarter.
Cautiously Optimistic Outlook
Rising cost pressures from higher wages, utility expenses and cost of goods sold could result in higher retailer turnover. Nonetheless, inflation, a healthy pipeline of events and limited new retail supply are expected to buoy rents in 2023. New retail stock islandwide will only come up to 0.3 million sf per annum from 2023 to 2027, less than half the 0.8 million sf per annum from 2017 to 2022. While Suburban retail market will remain supported by hybrid work and a low availability of prime spaces. The retail market in Orchard and Other City Areas will grow in tandem with the recovery of international travel. Particularly, China’s latest step towards reopening borders could bolster confidence of retail businesses in Orchard. However, as international travel recovers, Singapore consumer outbound spending would increase and sap domestic retail spending. Higher airfares and rising economic concerns could weigh on inbound tourism recovery. Against this backdrop, prime rental growths across the key retail submarkets should persist for 2023 albeit at a slower pace of about 1.5%-2.5% y-o-y, from 3.7% in 2022.