Orchard Road Rejuvenated

New malls, new tenants and new shopping concepts set cautiously optimistic outlook as economy recovers

The premier shopping destination in Singapore, Orchard Road, has undergone a S$40 million transformation since works began in April 2008. A host of retail space was added to the vibrant shopping street, bringing in the likes of new-to-market fashion labels, award-winning architecture and novel retail concepts. The unveiled thematic zones of flowers, forests and fruits along the 2.2-kilometre shopping stretch saw an enhanced tropical setting and installation of coordinated street furniture, alongside the repaving of walkways and creation of urban green rooms. Complementing these transformations was the conception of state-of-the-art lighting that is synonymous with the city that never sleeps.

Orchard Road

Orchard
The expansion of high-end, designer fashion along the shopping belt with the opening of ION Orchard has certainly added to a more vibrant landscape of Orchard Road.
Photo Credit: Singapore Tourism Board

The facelift of Orchard Road has seen major changes to the retail landscape amid a lacklustre macroeconomic environment. Yet, it seems that retailers housed in refurbished malls and new additions – a first of its kind since a decade ago – will be able to ride on the nation’s economic recovery in the long term.

Expansion of Retail Offerings

The revamp in Orchard Road has witnessed a notable expansion of high-end, designer fashion along the shopping belt. Duplex and flagship stores housing a collection of renowned international brands boldly front a refurbished Paragon and new malls such as ION Orchard and Mandarin Gallery, bringing the number of luxury fashion flagship stores to more than fifty in Orchard Road alone. Luxury retailers will benefit from the increased visibility and accessibility of their stores to upper middle-class shoppers as well as to the growing nouveau riche in Asia. Tourists from Indonesia and China alone made up 28.4 percent of tourism receipts in Singapore in 2009.

International visitor arrivals to Singapore have increased since a year ago. In May this year, visitor arrivals grew 30.5 per cent year-on-year to reach 946,150. A robust year-on-year growth of 29.1 percent is expected as the Singapore Tourism Board forecasts visitor arrivals to reach 11.5 to 12.5 million in 2010. The key drivers of tourism growth include the opening of the Integrated Resorts in 1H 2010 and the hosting of the Singapore Youth Olympics 2010 in August.

Luxury retailers stand to benefit from the strong growth in tourism. The demand for luxury goods by well-heeled consumers is steadily rising from its lows in mid-2009. Statistics reveal that one of the stronger retail segments this year has been watches and jewellery, reflecting strong positive year-on-year growth in sales beginning January 2010 after five quarters of double-digit declines.

Fall in Prime Orchard Road Rentals

Prime Orchard Road rents are approximately 30 percent higher since a decade ago and peaked at S$36.80 psf per month in 3Q 2008. They have since fallen for the seventh consecutive quarter, declining 3.4 percent quarter-on-quarter to an average of S$31.10 psf per month in 2Q 2010.

Rents were dampened at the trough of the global economic downturn. The recession, which Singapore had slipped into in 4Q 2008, prompted cautious spending that translated into poorer retail performance. Retail sales registered negative year-on-year growth for 11 months since November 2008, and dipped in 1Q2010 after a brief surge during the Christmas season. Latest available statistics reveal a year-on-year increase in retail sales of 5.6 per cent in May 2010.

Furthermore, the new supply of retail space continues to place downward pressure on rental increases. ION Orchard, 313@Somerset, Mandarin Gallery, Orchard Central, Knightsbridge and *Scape have come on stream since 2009 to date, supplying 1.45 million sq ft, or close to 40 percent of total net lettable retail space in Orchard Road in 2008. The leasing market will remain active and vacancies can be expected to increase in 2H2010 with the opening of Marina Bay Sands Shoppes which boasts a large-scale, cosmopolitan luxury retail experience over 800,000 sq ft of retail space.

Wave of New Supply Changing Tenant Mix

The addition of new supply has created a retailers’ market at present. Older malls face dwindling customer footfall with the more attractive, comprehensive retail offerings and multi-sensory shopping experiences heralded by the new malls. Some, like The Heeren and The Centrepoint, have already seen tenants shift to the newer malls or close down.

In the face of keener competition, mall owners have taken the opportunity of tenancy changes to market a distinctive shopping atmosphere. The management of The Heeren, for example, is confident of drawing shoppers with the newly opened, three-level ALT concept store which houses an array of exclusive brands.

Outlook

The enhancement of Orchard Road, mall openings and makeovers will bode well for the shopping belt as the economy continues its firm, manufacturing-led recovery. The GDP growth forecast for 2010 was recently revised upwards to 13.0 to 15.0 per cent (upgraded from an earlier estimate of 7.0 to 9.0 per cent) by the Ministry of Trade and Industry. The retail district can expect to see rents stabilize by the end of 2010, and a strengthening of prime rentals and rising consumer expenditure over the next two years with the strong rebound in Asia Pacific.

For the near term, the outlook remains cautiously optimistic. Asset enhancement efforts to capture and retain catchment demand are pertinent in light of increasing competition from both local and overseas malls. Luxury retailers hoping to consolidate their presence in Singapore will do well to analyse and cater to the aspirational habits of their expanding base of Asian consumers.

Article contributed by Dr Boaz Boon , Neo Poh Har and Joy Ng of CapitaLand’s research team August 2010

PROPERTY LAUNCHES & INVESTMENTS

Property Launches & Investments

Orchard Road Rejuvenated

Expansion of Retail Offerings

Fall in Prime Orchard Road Rentals

Wave of New Supply Changing Tenant Mix

Outlook

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