NUS Real Estate
Nurturing Young Leaders Lecture Series 2018
Topic: Singapore Retail:
Behind the Headlines
Retail forms a big part of Singaporean’s lives. Besides being the favourite pastime of most Singaporeans, it is a key contributor to Singapore’s economy. Together with the Internet, social media, has revolutionized the way in which retail is conducted. The speaker will walk you through the background of retail in Singapore
Speaker: Jack Backen (Director of CISTRI) Several projects across the world, and conducted several different studies across the discipline
Jack Backen specialises in the economics behind property performance. With qualifications in economics, law and finance, Jack joined Urbis in 2005 and focuses on projects in Asia. He is one of the founding directors of Urbis’ newly established Singapore entity, Cistri.
While Jack’s expertise lies in the retail sector, he also has wide experience across the office, residential and hospitality property sectors. He’s worked on projects in Singapore, Hong Kong, Malaysia, China, Japan, Indonesia, Pakistan, New Zealand and Qatar.
Jack provides in-depth economic research and analysis for projects of all kinds – including demographic analysis and change forecasting, property market performance forecasting, market demand studies, financial feasibility studies, highest and best land-use studies, and strategic master planning advice. He is also an active member of the International Council of Shopping Centers, and sits on its Asia-Pacific Research Committee.
Nine global retail property trends:
3.Consolidation and securitisation
5.The new anchors
6.Experience and authenticity
8.Understanding the consumer
9.Working the asset harder
On retail floor space in Singapore – How much is too much?
- According to studies, Singapore has much lesser floor space per capita as compared to America, KL, south korea etc.
- Having too much floor space may not be a good thing as it may indicate overbuilding
- Low supply of floor space may actually end up more productive floor space generating sales per square meter
Who Shops as Orchard Road?
- Singapore has a dense core retail area in orchard
- More shopping areas being added in suburban areas
- The scale and density of retail core in Singapore is higher than other places in the world
- However, increase in suburban retail spaces dilute the core area, affecting several aspects such as sales per GFA
- Compared to other countries in terns of sheer density, Orchard Road is considered big
- In terms of big malls above 1mil square feet, Singapore is lacking compared to countries such as Dubai or Beijing.
- In comparison to Dubai, Singaporean malls are on a much smaller scale, where entertainment is down scaled
- While economists think that bigger spaces lead to lower rents, in reality, you actually draw in more retailers and customers when you get bigger
Happenings in the Market
The retail market has under performed in recent years. Why?
Factors that affected the market:
- Inflation (RPI) flows through cost of goods, hence landlords built in inflation into their rent. Global RPI has fallen due to the capacity of producing goods in the world. Eg China has increased production costs [Symbol] manufacturing has moved from China to Bangladesh, and this process will continue shifting from one focus area to another
- As a result, there is no inflation in products, increasing the pressure on retailers to depend on sales volume to stay afloat, making things difficult.
- Population growth flows to retail sales through natural progression. Most sale growth was due to this natural progression. As Singapore has implemented immigration policies, it naturally affects the growth of the market
- Household income in direct link with sales
What are the drivers?
- House Price Index casus people change their perception in purchasing power
- Employment: lower employment leads to lower spending due to lower confidence. When employment is high, confidence naturally increases
- Don’t discount these factors as they all have a big impact collectively on confidence and sales
The Australian example:
Online expected to account for 17% of non-food retail market by 2025. This means that about half the impact on shopping centres from online retail has already occurred. Retail owners realised that there is still value in traditional shopping malls and that it still has the potential to grow.
- Significance of ecommerce in Singapore:
Shoppers are spending lesser, affecting the industry more as compared to ecommerce. Additionally, travel spending has a large impact as compared to ecommerce as Singaporeans spend a lot overseas.
- Ecommerce is only ¼ of the problem
- There are other bigger factors affecting the market
- Overseas travel is still a bigger factor that is affecting the market.
- By international standards, ecommerce in Singapore is low compared to UK, US and Australia.
How are Shops performing?
What is the outlook for Singapore retailers?
- URA rent index: both orchard and suburban rents have fallen sharply over the past 5 years
- Retailers can only spend a certain percentage of sales on rent, as they are unable to profit when it is too costly
- When rent exceeds a certain percentage (Occupancy cost ratio), smaller scale retailers would tend to leave
- Rental and sales are largely linked.
- If the sales productivity continues to increase, the rent will eventually follow, however rent is usually a lagging factor and requires time to bounce back
What is the answer?
- Singapore is lacking floor space
- Sales growth has been anemic – more cyclical than structural
- It is easy to blame ecommerce, however it is only the tip of the iceberg
- Lack of global inflation is also a major issue
- However rents keep increasing, while sales were stagnant, putting pressure on retailers
What is the outlook?
- Rent growth cannot return until sales growth does
- Economy is showing signs of recovery
- But expect it to be bumpy
- Optimistic outlook for the market