SINGAPORE retail landlords saw rents rebound in 2023 from their pandemic lows, as tourists re- turned and domestic spending recovered.

While inflationary pressures and the higher Goods and Services Tax (GST) may have a short-term impact, they are unlikely to dampen retail spending and push rents downwards, said market watchers.

Prime retail rents are expected to rise between 1.5 and 4.1 per cent for the whole of 2023, driven by strong performance in the Orchard Road and Downtown sub-markets, they noted.

Wong Xian Yang, Cushman & Wakefield's head of research for Singapore and South-east Asia, said: "The rise in retail rents is both demand-led, predominantly for Tier-1 malls like Ion Orchard and Nex, and cost-push due to higher inflation.

"Recovering tourism and revenge spending have driven tenant sales in the Tier-1 malls past pre- Covid levels. Therefore, landlords' rental expectations are rising, alongside increasing property operating costs."

Retail sales rose for eight consecutive months from February to September 2023 before dipping in October. They rebounded in November when S$4.1 billion in sales value was recorded, according to Department of Statistics figures.

Food and beverage remained the dominant driver, forming 48 per cent of new openings at prime malls in 2023, according to Cushman & Wakefield. This was followed by fashion, beauty and wellness, and lifestyle openings.

In November, Singapore's international visitor arrivals declined for the fourth consecutive month to 1.1 million, but were still higher than the 816,340 in November 2022. Before the pandemic, there were 1.5 million tourist arrivals in November 2019.

Analysts believe that momentum from tourist spending will continue and in the process uplift Orchard Road rents, but downside risks remain.

Tricia Song, CBRE head of research for Singapore and Southeast Asia, said: "A full tourism recovery is expected by 2024. That said, high inflation and rising oil prices could push up transport and accommodation costs for tourists. Coupled with the weak macroeconomic environment, travelers might tighten their purse strings and become more prudent with their spending and travel plans."

Desmond Sim, chief executive officer of Edmund Tie, said: "While we have seen tourism spending increase, the strength of the Singapore dollar is boosting revenge travel as Singaporeans flock overseas but tourists visiting will also have limited purchasing power.

"Inflation and to a certain extent the GST hike have taken the wind out of the retail market's sails."

Plans to rejuvenate Orchard Road as a lifestyle destination will help to boost rents and prices in the long term, analysts believe.

In August, Hotel Properties Limited (HPL) - which owns Forum The Shopping Mall, voco Orchard Singapore and HPL House - received approval from the Urban Redevelopment Authority (URA) to turn them into a massive mixed-use development.

The 114,153-square-metre development, if set in motion, would include a hotel and residential space across two buildings as well as retail and office components.

Interest in Orchard Road assets has risen. Tanglin Shopping Centre was sold in 2022 for S$868 million while Far East Shopping Centre is changing hands at S$908 million. Scotts Square has also been put up for sale at S$450 million.

According to market sources, the Delfi Orchard is looking for a collective sale opportunity which may open the door to redevelopment in the future.

In October last year, Trifecta - the world's first snow, surf and skate attraction-opened in Somerset.

Angelia Phua, JLL's consulting director for research and consultancy, said: "These new attractions and experiences are expected to drive more domestic and tourism foot traffic to Orchard.

"The redevelopment of older buildings along various stretches of Orchard Road could bring about new retail space that could attract new tenants and fetch higher rents, alongside the transformation of these stretches into more vibrant and prominent areas with higher foot traffic."

Knight Frank retail head Ethan Hsu said: "Strata malls are often a mishmash of trades due to owners who operate their own retail or F&B concept as well as others who lease out their units based on rent rates without sufficient consideration for concept type or trade synergies.

"In a post-pandemic landscape, these malls would benefit from a redesign in terms of mall positioning and trade-mix strategy so as to provide a holistic shopper experience and appeal to a new generation of customers."

In 2024, average rents on Orchard Road are projected to rise by around 3 to 5 per cent year on year, said Alan Cheong, executive director of research at Savills Singapore.

Meanwhile, average rents in the suburbs are expected to stay flat this year, he said, as outbound travel and inflation dampen discretionary consumption spending in the heartlands.

Preliminary CBRE data shows that prime floor rents in suburban malls have grown by 3.1 per cent year on year, less than the 4.2 per cent increase for prime floor rents islandwide, said Song.

She noted that suburban malls have "remained resilient through- out the pandemic due to (their) local catchment, and are now seeing more modest rental increases in comparison to other submarkets".

An estimated 0.57 million square feet net lettable area (NLA) of retail space will be added in 2024, based on URA data. While this figure is higher than the 443,473 sq ft NLA of retail space completed in 2022 and similar to the 599,549 sq ft NLA completed in 2021, it is still lower than the 1.2 million sq ft NLA completed in 2019, said Leonard Tay, head of research with Knight Frank.

He said: "There is little chance of any retail oversupply in 2024 and it will not affect retail rents this year."

Pasir Ris Mall, with approximately 280,000 sq ft NLA, is one of the major retail developments estimated to complete in 2024, said Song. A smaller retail component estimated at about 30,000 sq ft NLA, in Labrador Tower, is also coming up.

Song said: "Retail supply to be added in 2024 is still below the historical five-year annual average of 0.62 million sq ft, which should lend support to rents next year."

Price trends are expected to be positive in 2024 for capital values as well, she added.

According to URA data, prices of retail space in the Central Region recovered 0.9 per cent since bottoming in Q1. In Q3, the price index was 26 per cent below its peak levels in Q4 of 2014. Song said: "We expect price trends to be positive in 2024, in line with retail spending and rental trends."