Mall rents down? Not for lease renewals

Mall rents down? Not for lease renewals
Existing complexes still ask for higher renewal rates, says retail giant
By Joyce Teo

Property experts said the rental declines would be more evident in malls that still have space to lease, including new complexes in the Orchard strip and nearby existing malls that may have lost some tenants to the recent arrivals.

THE new malls taking shape in Singapore are offering lower rents to lure tenants in trying times but existing complexes are demanding higher renewal rates, said a senior executive of retail giant RSH Group.

Chief operating officer Kesri Kapur pointed to a paradox in the local market: Most retailers are grappling with falling profits, yet most lease renewals are done at higher levels.

One suburban mall is even asking RSH for 20per cent more to renew the lease of a shop of less than 3,000 sq ft.

‘We are moving out of that particular location. Obviously, business is not what we would have expected when we signed the lease,’ said Mr Kapur.

‘This is one example where we have taken a decision… There are a couple of other locations that we are reviewing.’

Mr Kapur conceded that landlords may have lowered their expectations of how much more they might get in rent renewals, but they are still renewing leases at a higher level.

‘Whenever we renew rents in Orchard Road, the rents have not declined,’ he said. ‘For the newer malls, for those who have not signed before December, their offers would probably be better.’

A typical retail lease lasts three years so a higher rent now means one above the level committed three years ago.

Retail rents have indeed fallen from the peak rates of last year, but they may not all have dropped to levels done three years ago.

According to consultancy DTZ, rents of prime retail space in Orchard Road, Scotts Road and other city areas have fallen by more than 6per cent from last year’s peak and are close to 2006 levels.

But suburban rents have fallen by only 2.1per cent and are at 2007 levels.

Property experts said the rental declines would be more evident in malls that still have space to lease.

These include new complexes, such as those in the Orchard strip, as well as nearby existing malls that may have lost some tenants to the recent arrivals.

DTZ’s associate director of retail, Ms Anna Lee, said in a report on Friday that many retailers and food and beverage (F&B) operators have delayed expansion plans or changed their business strategies under the pressure of the economic downturn.

‘Some F&B operators have or are considering moving to business parks, where rents are much lower and the worker catchment is considerable,’ she said.

More retailers are also feeling the pressure of having to move out of unprofitable locations, said an industry source.

The Singapore Retailers Association had earlier called for landlords to lower rents, saying many firms will go under if something is not done.

Executive director Lau Chuen Wei said the association started its ‘crusade’ to highlight to landlords that their high rents may cause the closure of some retail stores - and cost retail jobs.

They have since seen indications that some landlords are more open to exploring creative ways of collaboration, though most would not reduce rents.

‘However, we also hear that new sign-ups have seen more success in achieving rents that are lower than initially offered,’ she said.

Mr Kapur said he anticipates consumer demand to be challenging in the next 12 to 18 months.

‘Everybody is facing challenges now. What is important is whether you can hold hands and work together.’

RSH to bring in new fashion brand
RSH Group is continuing to build up its presence in Orchard Road by booking space at the upcoming 313@Somerset mall and introducing a new fashion brand, called Bershka, to Singapore.

Chief operating officer Kesri Kapur said the group will set up a boutique in Ion Orchard for Bershka, a Spanish fashion brand owned by Inditex which created Zara and Massimo Dutti.

The shop will the first in South-east Asia selling the brand.

The Bershka boutique will take up 4,040 sq ft at the mall and will open late next month after the other RSH shops in the complex open.

It will increase RSH’s footprint in Ion Orchard to 44,000 sq ft, making it the largest fashion tenant in the mall. Its other shops at Ion include Zara, Sephora, Pull and Bear, Mango, Massimo Dutti and Bebe.

Singapore-listed RSH is also taking up 26,170 sq ft at 313@Somerset, with 11,750 sq ft of that set aside for Zara.

Its other shops at 313@Somerset will be for Mango, Lacoste, Puma and Royal Sporting House and Golf House.

JOYCE TEO

Source : Straits Times - 06 July 2009

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