Domestic consumption and tourism spending remain resilient

• Domestic COVID-19 measures were further relaxed in October 2022. The sustained reopening of the Singapore economy continued to drive domestic consumption amid a healthy labour market and the influx of international visitor arrivals, which underpinned the retail market’s recovery. Hence, businesses with a longer-term perspective continue to pursue business expansions, albeit cautiously.
• Retail sales eased on dissipating demand but remained relatively resilient, despite inflationary pressure. In 4Q22, the retail sales index (excluding motor vehicles) in chained-volume terms rose 8.1% y-o-y, compared to 14.2% y-o-y growth in 3Q22. International visitor arrivals grew for the sixth straight quarter to about 2.6 million in 4Q22.

Vacancy rates in the Secondary and Suburban submarkets fall

• There were no new retail space openings in 4Q22. Retail supply remains tight and the bulk of new space will continue to come from the Suburban submarket.
• In 4Q22, vacancy rates in the Prime submarket rose, largely due to the closure of T Galleria by DFS at 25 Scotts Road. Apart from this, occupier demand remained relatively firm in many of the other malls in the Prime submarket. Vacancy rates in the Secondary and Suburban submarkets extended their decline in 4Q22 for the third straight quarter.

Rent growth moderates in 4Q22 across the three submarkets

• In 4Q22, rents of prime floor space continued to rise q-o-q across all submarkets but moderated after accelerating for two consecutive quarters. While the relatively firm demand amid space tightness continued to underpin rent growth, the weak economic outlook capped the upside. 
• The rise in tourist arrivals, the return of the workforce to their workplaces, and the growth in MICE activities have lifted consumption and, hence, supported rents in the Prime and Secondary submarkets in 4Q22. Rents of prime floor space in the Suburban submarket rose for the sixth straight quarter in 4Q22 as resident demand remained resilient and positive business sentiment supported rents.

Outlook: Retail rents to extend growth in 2023

• While macroeconomic headwinds could lead to greater caution in retailers’ expansion strategies, Singapore’s sustained economic reopening, the recent return of foreign tourists and the impending return of Chinese tourists should continue to attract new-to-market businesses and spur opportunistic expansion.
• Vacancy rates should continue to fall on the back of positive net space absorption and tight supply and, in turn, support rent growth in 2023. A positive rent outlook and a scarcity of quality retail assets should keep retail asset prices resilient, notwithstanding an expansionary yield outlook.