Singapore Retail market overview

Economic Growth
Singapore recorded strong economic growth from 2000, with an average annual real gross domestic product (GDP) growth rate of 5.3% over 2001-2012. This growth was achieved despite the effects of the global financial crisis (GFC), which caused growth to decrease to 1.7% in 2008 and -1.0% in 2009.

The Singapore economy is highly integrated, translating to growth being sensitive to fluctuations in the global economy, as evidenced by the significantly decreased growth rates recorded in 2008 and 2009. It also means that the Singapore economy is one of the first to recover from a downturn, exemplified by GDP growth increasing rapidly in 2010 to 14.8%. Economic activity moderated to normal historical levels in 2011.

Growth in 2012 is estimated to have been 1.3%, a significant decline from 5.2% in 2011, largely due to soft global economic conditions. Growth is forecast by the Economic Intelligence Unit (EIU) to rebound in the next few years, reaching 2.9% in 2013 and 5.6% in 2016. This translates to an average annual growth rate of 4.8% for the 2013-2016 period.

The aforementioned forecasts assume a moderate global economic recovery over the forecast period. However, as earlier noted, the Singapore economy is highly integrated and accordingly there is always downside risk associated with the absence of a global recovery or another downturn. Equally, a better than expected global recovery could see Singapore outperforming forecasts.

Inflation
Consumer price inflation in Singapore has been relatively low, averaging 2.2% per annum since 2001 and generally within the Government’s target range of 1.0%-3.0%. 2011 and 2012 recorded inflation above historical trend levels, with consumer price inflation recorded at 5.2% in 2011 and estimated at 4.5% for 2012. Recent uncharacteristically high growth in consumer prices has been largely the result of rising housing, food, and transport costs.

The EIU expects consumer price inflation to moderate over 2013 and 2014, at 3.7% and 2.9% respectively. Thereafter, consumer price inflation is forecast to stabilise around 2.4%, corresponding to an average annual inflation rate of 2.8% over the 2013-2016 forecast period.

Retail price inflation measures the price increase of retail goods and services. Historically retail price inflation in Singapore has trended marginally below consumer price inflation, averaging 1.2% per annum over 2001-2011. Initial estimates of retail price inflation for 2012 are 1.7% with lower price growth for non-food goods partially offsetting rises in food prices. Over 2013-2016, retail price inflation is expected to average approximately 1.3% per annum.

Population
In June 2012, Singapore Department of Statistics estimated the total population of Singapore to be approximately 5.3 million. This total population figure for 2012 consists of 3.8 million Singapore ‘residents’ (either citizens or permanent residents) and 1.5 million ‘non-residents’. ‘Non-residents’ primarily consist of expatriate workers on long-term working visas. This segment of the population includes both skilled professionals and unskilled workers.

For 2013-2016, we expect the total Singapore population will grow at an average rate of 1.8% per annum, reaching around 5.7 million in 2016. The growth in ‘resident’ population is expected to average approximately 1.3% per annum over the forecast period, a relatively low growth rate corresponding to Singapore’s low birth rate. Growth for the ‘non-resident’ population is forecast to be higher than for the ‘resident’ population, averaging around 3.0% per annum. It is recognised that this growth rate is lower than historical trends, and this is reflective of a moderated economic growth outlook for Singapore relative to the previous decade, which will allow the Government to tighten immigration policies without impeding economic growth.

Tourism
Tourism has grown very strongly in Singapore post-2009 with average growth of 16.6% per annum over 2009-2011. Tourism again grew strongly in 2012, with total international visitor arrivals estimated at 14.7 million, 11.4% higher than the number recorded in 2011. The strong growth in international visitor arrivals has been fuelled by the completion of a number of tourist-oriented developments, such as Marina Bay Sands and Resorts World Sentosa, as well as the growth in popularity of internationally renowned events, examples of which are the Singapore Grand Prix and Singapore Arts Festival.

We estimate tourists’ retail spending in Singapore for 2012 at S$7.4 billion, accounting for around 17.6% of total retail sales. This high proportion by international standards emphasises the importance of tourism to the overall retail market in Singapore.

International visitor arrivals are expected to continue growing over 2013-2016, but at a slower average rate of 5.5% per annum, as compared with the average growth of 6.3% per annum from 2001-2012. This will translate to tourists’ spending accounting for an increasing proportion of the total retail sales over time, reaching 19.0% in 2016.

Retail Sales
Retail sales growth in Singapore has historically been quite strong apart from significant downturns corresponding to 9/11 terrorist attacks, SARS and the GFC in 2001, 2003 and 2008-09 respectively. Despite these downturns, nominal sales growth over 2001-2011 still averaged 3.9% per annum. The retail market bounced back strongly post-2009 (after the GFC), recording a sales growth of 6.8% in 2010. In 2011, nominal retail sales continued the post-GFC recovery, recording a growth of 7.1%. Estimates for 2012 indicate a slight moderation, with retail sales expected to grow at 4.9% in the wake of subdued domestic economic growth and soft global economic conditions.

In the absence of any major economic shocks, retail sales growth is expected to grow at a healthy rate over the forecast period, averaging 5.0% per annum over 2013-2016.

Retail Supply
We estimate the total retail net lettable area (NLA) in Singapore was 56.7 million sq ft as at 31 December 2012. Approximately 24.9 million sq ft (equivalent to 44.0%) is estimated to be shopping centre floor space.

Over the course of 2012, approximately 1.1 million sq ft of retail floor space came onstream, of which around 724,000 sq ft was shopping centre floor space. This comprised a 3.0% increase in shopping centre floor space, with the most significant projects being JCube in Jurong East, The Star Vista in Buona Vista, and 100 AM in Tanjong Pagar. For 2013-2016, we expect an average annual growth rate of 4.3% in shopping centre floor space.

2013 and 2014 are forecast to be years of particularly high growth in shopping centre floor space, at 2.6% and 4.3% respectively. In 2013, a number of significant projects are scheduled for completion, including Jem located in Jurong East, and CapitaMalls Asia Limited (CMA)/CapitaLand Limited’s Bedok Mall, which is part of a retail-cum-residential development.

Significant projects set for completion in 2014 include CapitaLand’s Westgate in Jurong East, and the Singapore Sports Hub Consortium’s Sports Hub in Kallang. The most significant development on Orchard Road in 2014 will be the redevelopment of Hotel Phoenix.

Retail Floor space per Capita
Retail floor space per capita in Singapore is estimated to be approximately 10.7 sq ft in 2012 and is expected to grow marginally to 11.0 sq ft by 2015. This provision is relatively low compared with other developed Asian economies such as China (12.9 sq ft), South Korea (14.4 sq ft) and Japan (16.6 sq ft). However, the proportion of shopping centre floor space (44.0%) in Singapore is relatively high.

Major Mall Ownership
At present, CMT remains by far the largest shopping centre owner in Singapore, constituting a 17.3% share of floor space in shopping centres over 100,000 sq ft NLA. A significant gap exists between CMT and its nearest competitors in terms of market share, Pramerica (6.8%) and Frasers Centrepoint (6.5%) being the closest competitors. As a result of their scale of operations in Singapore, CMT has a competitive advantage in achieving economies of scale in terms of centre management, marketing and leasing.

Retail Property Performance
Over the first three quarters of 2012, prime rents in both the Orchard Road and Suburban sub-markets remained steady relative to the rates achieved in 4Q 2011. The lack of rental growth in Orchard Road reflects the absorption of a significant amount of the retail floor space that came onstream in 2009 and 2010, as well as soft economic conditions curtailing retail sales growth.

CBRE reported that average prime rents on Orchard Road remained approximately S$31.60 per sq ft per month over the first three quarters of 2012, the same as reported in 4Q 2011. However, it still represents growth of 1.7% relative to average rents in the first three quarters of 2011. Prime rents in the Suburban sub-market averaged S$29.75 per sq ft per month over the first three quarters of 2012, representing growth of 3.5% relative to average rents in the first three quarters in 2011.

Retail Rental & Occupancy Outlook
In the coming years, it is expected that rental growth in the Orchard and Suburban sub-markets will be supported by a moderated supply pipeline and growth in retail sales.

Rental data in 2012 indicates that the Orchard Road sub-market has emerged from the bottom of the decline in rents attributable to the significant increase in retail floor space supply in 2009 and 2010. Over the next few years, it is expected that moderate retail sales growth and a limited schedule of forthcoming supply will lead to rental growth of around 3.0% per annum, up from 2.6% in 2012.

Rental growth in the Suburban sub-market is forecast at a similar rate around 3.0% per annum from 2013-2015, as the increased supply in this market is set to be balanced by the fact that the new centres are going into growth areas which should have capacity to support the new supply.

Furthermore, it is our understanding that a number of the forthcoming shopping centre developments in the Suburban sub-market have had strong interest and take-up from retailers, so this infl ux is not expected to adversely affect rental or occupancy rate levels.

Average occupancy rates are expected to increase in line with rents in both sub-markets. In the Orchard Road sub-market, occupancy rate is forecast to increase from 92.2% in 2012 to 96.5% by 2015. Average occupancy rates in the Suburban sub-market are expected to grow only slightly from 95.3% in 2012, stabilising marginally below those on Orchard Road, at around 95.5%.

Conclusions
The outlook for the Singapore retail sector is relatively positive, with resilient domestic demand set to support retail sales growth moving forward in spite of projected soft global economic conditions. The forecast continuation of strong growth in the number of international visitor arrivals is expected to further support retail sales moving forward via increasing tourist spending.

Retail development in Singapore remains active, with the market set for significant additions to the supply of shopping centre floor space in 2013 and 2014, particularly in the Suburban sub-market. As previously noted, this increase in supply is not expected to put material downward pressure on rents or occupancy rates due to the fact that the new centres are going into growth areas and evidence of strong take-up from retailers.

After a couple of weaker years, strong rental growth is returning to the market. While rental growth over the next few years is not expected to reach pre-GFC highs, solid growth of around 3.0% per annum should be achievable in both the Orchard Road and Suburban sub-markets.

As always, the uncertain global economic outlook poses a downside risk to the Singapore economy, and as such actual outcomes may deviate downward from the above forecasts subject to global economic shocks. Despite these risks, well maintained and managed assets, which are suitably positioned relative to their customer base, are expected to continue to outperform the market.

Source: UBIS for Capital Mall

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