The current environment presents an excellent opportunity for retailers to leverage technology and growth mindset to transform themselves.
The upward trend for digital retail in 2020 has been accelerated globally, in part due to the lockdowns during the COVID-19 pandemic.
With the rapid pace of technological advances and the current trend of retail sales now being done online, what is the outlook for the local retail industry? What challenges and opportunities can retailers expect as we transition into the new year and beyond? And what part does the Industrial sector have to play in the growth of retail?
In this Real Estate Market Outlook, Capital Markets and Investments Services expert Ling Wei Kong (LW) sat down with Managing Director WeiLeng Tang (WL) and Head of Research Tricia Song (TS) to discover insights and opportunities that investors in the retail and industrial asset classes can leverage to navigate through the uncertainty of the economic outlook.
LW: Could you give us a quick overview of Singapore’s economy today and how have the various property sectors been affected?
TS: Looking at the current performance of the property sectors, rents for industrial and logistics real estate have come down by just 1.5%, office rents have gone down by 5% and retail rents decreased by 10%. Hotel room rates have also gone down by close to 50%.
Next year, with the GDP growth expected to rebound by 6% and interest rates taking the cue from the US, the overall property sector outlook should be positive.
"Industrial is the only sector to have grown year-to-date, showing the shift in investors’ preference. With the rise of eCommerce, we expect warehouse rents to grow in tandem with GDP growth."
Interestingly, the Industrial sector has retained its shine while retail rents have come off significantly. What is your latest observation on these two sectors and does that spell the end for offline retail?
TS: Investment sales transactions are down by over 50% year-to-date according to our research. Looking at the breakdown, commercial – which includes office, retail or both – usually makes up the lion’s share.
Industrial is the only sector to have grown year-to-date, showing the shift in investors’ preference. We note more heavyweight logistics warehouse transactions, not just by REITs but also financial investors.
With the rise of eCommerce, we expect warehouse rents to grow in tandem with GDP growth.
WL: Retailers must rebalance their online and offline presence, depending on the product they offer. Both are relevant – it’s about getting the ratio right and achieving flexibility between the two.
TS: Interestingly, online sales as a proportion of total retail sales after the big spike during the Circuit Breaker have eased, from 24.5% in May and steadying at 11%, with in-store shopping maintaining its relevancy with 89% of offline retail sales.
While retail rents have come off due to the pandemic and lockdowns, foot traffic and tenant sales have gradually recovered after the lift of some measures. Between the destination shopping belt Orchard Road and suburban/community retail, community retail has historically been more resilient due to necessity shopping and domestic catchment.
Local retailers have reported a recovery in retail sales due to domestic spending, but community retail have proved more resilient
Community Retail, or suburban retail malls are already reporting tenant sales of a recovery to pre-COVID levels, while Orchard Road tenant sales report a 60-70% recovery.
For Orchard Road retail, domestic spending has made up for some of the slack but cannot totally account for it. There will still be notable casualties, such the recent folding of an iconic department store – not just due to eCommerce, but also the lack of tourists and a change in consumer preferences.
Fortunately, there are only a handful of new shopping malls coming onstream next few years, which should give landlords some breathing space.
WL: The current environment presents an excellent opportunity for main street retailers to leverage the greater acceptance of technology and growth mindset to transform themselves. Retail has been through its many stages of evolution since time immemorable (mom-and-pop, department stores, shopping mall, eCommerce, omnichannel retail).
Where there is commerce, there will be an exchange, or the selling and buying of goods and services. Will this exchange of goods and services occur in brick-and-mortar, or digitally?
“The balance between [online and offline retail] should be maintained in the right ratio with flexibility, constantly resonating with consumer behaviours and demand."
While current statistics suggest both online and offline, the balance between the two should be maintained in the right ratio with flexibility, constantly resonating with consumer behaviours and demand.
Retailers need warehouses to store their goods and the rise of eCommerce has led to a rise in the demand for logistics – particularly, the last mile fulfilment aspect.
It is evident that both Retail and Industrial complement one another – and increasingly so in the current environment – with the rise in importance of the last mile fulfillment and delivery, ie. you want to get your goods quickly, and it saves gas and the environment.
Retail and industrial are increasingly complementing one another with the rise in importance of the last mile fulfilment challenge
With many of the Industrial buildings now comprising of elegant workspaces of high specifications and quality, there are no longer the banished ugly ducklings of architecture in the neighbourhood. Many of them now look like elegant offices with high specifications and good quality.
In fact, a lot of them with their higher ceiling heights and greater loading capacity offers better flexibility to house different uses, if the planning codes allow for it.
Big box retail or retail warehouse is one example of retail going into industrial, but what about the reverse? With technological advances, shopping malls can congruently play the part of being convenient pick-up facilities in resolving the ‘last mile challenge’.
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- Revitalising Retail and Heritage Shophouses
- Finding Value in Logistics
- Singapore's Retail Malls Maintain Investor Attraction
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