Retail Sales Maintain Growth
Amidst a return to pre-pandemic normalcy, total retail sales grew by 9.3% as of May 2022 YTD, fueled by revenge spending and recovering tourism. Strong growths were observed in the retail trades of wearing apparel & footwear (+33.6% YTD), department stores (+22.9% YTD) and watches & jewellery (+19.9% YTD). While online sales have grown, it remains a small proportion of the total retail sales at about 15%. Retail sales are poised to recover further, on the back of a gradual revival in international visitor arrivals. Tourism recovery remains weighed down by China’s zero-Covid policy, given Chinese visitors’ significant contribution to Singapore’s tourism sector (~19% of total visitor arrivals in 2019).
Retail Rents Recover
Orchard and Suburban prime retail rents increased by 1.5% qoq and 1.3% qoq respectively in Q2 2022, supported by improving market sentiments on the back of significant easing of safe management measures and recovering tourism. Other City Areas prime retail rents also edged up by 1.2% qoq in Q2 2022 as more workers returned to the office. Given the reopening of borders and prevalence of hybrid work, the Orchard and Suburban retail markets are poised to lead rental growth this year with a 3-4% yoy increase. But Other City Areas prime retail growth for 2022, which is expected to come in at about 2-3% yoy, would be weighed down by hybrid work impeding overall footfall in the CBD.
Retailers continue to show healthy appetite for retail space. Notable F&B retailers who expanded in the first half of 2022 include Chinese quick-service restaurant Gong Yuan Ma La Tang and French bakery Au Croissant that each opened three more outlets. Besides Nike and New Balance have taken up prime units at Bugis Junction and Tampines Mall respectively, specialty running store Running Lab has expanded at VivoCity and sporting goods online retailer Sports Factory has debuted its first brick and mortar store at Century Square. Going forward this year, Puma will also introduce a flagship store at 313@Somerset and Lululemon will open its sixth store at Raffles City. Also, given China’s zero-Covid policy, we anticipate more retail demand from new-to-market Chinese brands that look to expand overseas and diversify their operations.
Market Recovery Faces Headwinds
While rents have started to grow, retail operating conditions remain challenging. Manpower shortages, persistent inflationary pressures and food supply disruptions are increasing operating costs and would particularly impact food & beverage (F&B) retailers who are key in driving retail demand. Some retailers may not be able to fully pass on higher costs as consumers become increasingly price sensitive. Higher mortgage rates may lead to lower consumer discretionary incomes and lower retail spend. The reopening of borders may also divert some consumer spending overseas, offsetting part of the gains from higher inbound tourism.