COVID19 brings 2Q20 URA retail rent index to the lowest on record

Singapore’s retail property market was hit hard by COVID19 in 2Q20 and we expect overall market sentiment to stay soft in the rest of 2020

July 29, 2020

The Urban Redevelopment Authority’s (URA) 2Q20 real estate statistics showed that the retail rental index for Central Region fell 3.5% q-o-q to its lowest since the start of the time series in 2011. The quarterly rent fall in 2Q20 was also steeper than the 2.3% q-o-q correction recorded for 1Q20. This came on the back of rising vacancies and shrinking demand across all regions.

COVID19 and the drastic measures needed to curb its spread have started to claim victims in the retail market. More businesses are being shuttered, and many others have downsized their portfolio to minimize losses amid severely reduced sales on the back of loss of tourists’ dollars due to continued travel curbs, and depressed domestic spend as non-essential physical stores had to be shut in most part of 2Q20 due to the Circuit Breaker measures.

In the coming quarters, more retail closures could emerge as government and/or landlord support for retailers ease and the Temporary Deferment Bill no longer protects businesses of their deferred liabilities. Risks of new waves of COVID19 outbreak potentially triggering repeated lock-downs, the likelihood of prolonged implementations of safe-distancing measures curbing operating capacity and keeping operating costs elevated, and with mass international travelling unlikely to occur in 2H20, retailer sentiment is foreseen to stay dented. Demand for retail space will likely stay depressed, keeping rents on the downtrend in 2H20.

On a brighter note, retailers with a deeper balance sheet and a medium-to-long-term perspective are likely to continue to anchor in Singapore as a gateway to Asia. The eventual successful containment of the COVID-19 outbreak would see the government lifting safe-distancing measures and travel restrictions, and reinvigorating economic activities. Retailer and consumer confidence should return, and business expansion should resume. Occupier demand should recover as foot traffic and retail sales pick up alongside economic growth. Coupled with the supply tightness, vacancy rates could fall to support rent recovery by 2022.