In the first quarter of 2023, Singapore experienced a notable uptick in prime retail rents, increasing by 1.2% quarter-over-quarter (q-o-q) and 5% year-over-year (y-o-y). This growth comes from the ongoing recovery in the tourism sector, with more borders reopening in Asia and Singapore welcoming an influx of tourists from previously closed countries.
According to the Singapore Tourism Board (STB), Singapore welcomed over 2.9 million visitors in the first quarter of 2023. While this figure represents only two-thirds of the pre-pandemic number of 4.7 million visitors, the average length of stay for tourists in Singapore has increased from 3.34 days in 2019 to 3.97 days in early 2023. The steady rise in tourist numbers has contributed significantly to the recovery in retail real estate rents, particularly in the prime Orchard Road shopping strip.
The Orchard area experienced a 1.4% q-o-q and 5.2% y-o-y growth in retail rents in 1Q2023. This is primarily attributed to the steady increase in tourist numbers, which has boosted the retail real estate market in the prime shopping district.
Prime retail rents in Marina Centre, City Hall, and Bugis rose by 1.3% q-o-q and 5.2% y-o-y to reach $24.20 psf per month (psf pm). Rents in the City Fringe also grew by 1.4% q-o-q and 4.4% y-o-y to reach $22.60 psf pm. Suburban malls saw a slight rent increase, with a 0.6% q-o-q growth to $26.20 psf pm, or 3.6% higher y-o-y.
Despite the growth in retail rental rates, retail sales (excluding motor vehicles) experienced an 18.7% month-over-month (m-o-m) decline in February to $3.1 billion. This marked a second consecutive month of decline, which could indicate the end of “revenge spending” by consumers during the Christmas and Chinese New Year festive periods.
However, retail sales volume remained above levels recorded during the pandemic and was slightly higher than pre-pandemic sales volume in February 2019. This demonstrates the resilience of the retail sector in Singapore.
As Singapore’s retail sector strengthens, consumers are increasingly drawn to experiential retail and lifestyle concepts. The city-state’s reputation as a safe destination that attracts private wealth has led to the opening of new stores from international luxury brands such as Giuseppe Zanotti, Grand Seiko, and Atelier Cologne since the second half of 2022. In addition, new F&B entrants like Unatoto, Takagi Coffee, Hanazen, Luckin Coffee, and Tim Hortons have entered the market.
The retail sector in Singapore is expected to continue recovering and growing as air travel and visitor arrivals approach pre-pandemic levels. The Singapore Tourism Board (STB) estimates that 12 to 14 million tourist arrivals are expected in 2023.
Despite challenges such as inflation, economic uncertainty, and the upward revision of the goods and services tax, the sector’s recovery should continue to support retail rents. Moreover, the prevailing cautious optimism in the post-pandemic retail landscape has bolstered the sector. As a result, according to Ethan Hsu, Knight Frank Singapore’s Head of Retail, prime retail rents are anticipated to register moderate gains of between 3% and 5% in 2023.
In conclusion, Singapore’s prime retail rents have experienced growth in Q1 2023 due to the ongoing recovery in the tourism sector. Despite potential headwinds, the retail sector is expected to continue its upward trajectory in 2023. The shift towards experiential retail and lifestyle concepts and the entry of international luxury brands and new F&B players are expected to contribute to the sector’s growth and resilience.