Some retailers cut losses or shut stores, as rental rates rebound to even higher than pre-Covid
Ooi Boon Keong/TODAYSINGAPORE — After 30 years of running a small eatery tucked at the back corners of Lucky Plaza mall, owner Anthony Lim decided to call it quits.
A view of shuttered shop spaces in Lucky Plaza mall on Orchard Road.
- As the economy reopens, some tenants said they are paying higher rent than before Covid-19 struck
- The spike in rates have forced some shop owners to relocate or change their business
- Some major retailers have also been consolidating outlets because of higher rent
- Analysts said rent in both the heartland and Orchard Road areas are set to grow as more tourists return
When his lease was up for renewal last year, his landlord wanted to raise his monthly rent from about S$3,000 to S$9,500, which would have been higher than the S$8,000 or so he was paying before the Covid-19 pandemic.
In October last year, he officially closed Alfa Cafe and gave up the lease for his kitchen. He then converted the dining area for the fish soup store, which was located a few shops away and leased from a different landlord, into a bakery to focus on online sales.
“We had many issues with the landlord (for my kitchen). We paid him more than a million dollars over the 30 years and rent was always paid on the dot,” Mr Lim, 51, said.
He leases his shops from private landlords, not from the mall, because Lucky Plaza is a strata-titled development where units were individually sold to different owners. Other malls may be owned by a single developer that leases shop space.
As the economy reopens, some tenants said that they are now looking at paying higher rent than before Covid-19 struck in 2020.
OWNERS FORCED TO CLOSE SHOP
In interviews with nine tenants from various malls in the heartlands and along the Orchard Road shopping belt, many of them said that their rental costs were raised when they renewed their leases in the past 12 months.The majority saw a 10 per cent increase compared with pre-Covid levels but some experienced hikes of up to 30 per cent.
Some of the shop owners facing higher rent when their lease expire later this year said that they have chosen to close some stores or relocate to a different mall.
Ms Grace Tan, director of ToTT Store, said that when the lease for the kitchenware and cooking school’s outlet at Century Square in Tampines was up for renewal in mid-last year, the mall had tried to increase the rent but she managed to negotiate for a one-year extension with no change in price.
Then, when negotiations started again in December last year for the renewal, the mall offered her a 30 per cent more expensive rental price.
“We did not think it was fair to go up by that much, so we countered with a 10 per cent increase and they refused to accept it,” Ms Tan said.
The ToTT branch was already making a loss that year so she has decided to move out of the mall when the lease expires in June this year.
The company has since signed new leases at i12 Katong mall on East Coast Road and IMM at Jurong East.
It has another outlet at Suntec City mall and the company managed to renew its three-year lease at a lower price last June.
At handicraft and home decoration store Gift of Nature, the shop’s director, Mr Endre Huebner, has decided to vacate the outlet at Sembawang Shopping Centre by this June, leaving the shop with just one branch remaining at Roxy Square mall on East Coast Road.
Mr Huebner, 48, said that he signed a three-year lease with Sembawang Shopping Centre in June last year for S$3,000 a month. The lease agreement, however, specified that the rent would increase to S$4,000 from this June, and again to S$5,000 in June 2023.
Staying on beyond June this year could bankrupt the company, Mr Huebner said, adding that he intends to move out before then.
Last year, he made an average of S$10,000 in sales monthly, but he still suffered losses of around S$4,000 to S$5,000 every month at his Sembawang store after accounting for rental, utilities, manpower and cost price of goods.
Some major retail players, too, have been consolidating their outlets because of the higher rent.
Mr Kelvyn Chee, managing director of apparel retailer Decks, said that for the stores where he renegotiated rent between March and April, landlords have been offering prices that are 10 to 20 per cent higher than before the pandemic.
Decks runs dozens of retail stores across the island including household clothing brand names such as Hang Ten, M)phosis and Surfers Paradise.
Mr Chee said that the company had to close an outlet in Clarke Quay Central in October last year because the rental fees were too high.
A managing director of a retail group that owns more than 20 stores here in malls in suburban and city areas said that rental charges for the outlets that are up for lease renewal soon are set for increases of around 8 to 16 per cent.
He is now planning to close two to three of the outlets where the rent hikes will be eating into the company’s profit margins.
“The margins (for the business) are not high. If rent goes up, then it’ll bring the business to a loss right away,” the managing director said, speaking on condition of anonymity because he did not want to harm his relationship with his landlords.
RENT ‘EXPECTED TO CLIMB’
Over the past two years, malls in the heartland areas have generally fared better than those in the city because more people worked from home and kept within the neighbourhoods where they lived.Mr Terence Yow, president of the Singapore Tenants United For Fairness co-operative, said: “I’ll go so far as to say that based on what we see, rental rates in heartland malls in general have stayed flat or have been increasing in some locations.”
Many businesses in the city area, however, have become unviable given that there is already low foot traffic there, Mr Yow said.
The co-operative is expecting retail rent in the area to return to pre-Covid-19 levels by next year or so, based on the current lease negotiations that it is observing.
The latest data from commercial real estate services firm CBRE showed that in the first quarter of the year, average prime retail rent for the suburban areas rose 2.2 per cent year-on-year, while retail rent for spaces on Orchard Road dropped 2 per cent.
Prime retail rent refers to the rate for stores that have the best presence, footfall and accessibility in a mall — typically those on the first level or on floors with direct connectivity to the MRT rail network.
With Singapore’s border and domestic Covid-19 restrictions now easing, property analysts are expecting rent in both the heartland and Orchard Road areas to grow.
Mr Derek Tan, head of property research at DBS bank, said that he expects the rent for heartland retail shops to continue growing, albeit at a slower rate than that in the Orchard Road area.
He added that rental rates in the heartland will not be as steep as for retail spaces in the Orchard Road area where the return of more tourists are expected to boost sales for shops in the area, which are now at around 70 per cent of pre-pandemic levels.
Mr Leonard Tay, head of research at real estate consultancy Knight Frank, expects rental prices to bottom out in the second quarter of this year before improving.
For the whole year, he foresees prime retail rent to go up by 2 to 4 per cent, with rent for suburban retail shops growing faster than those located along Orchard Road because tourist arrivals may not rebound so soon.
By the calculations of commercial real estate services firm Colliers, it expects prime retail rent in the Orchard Road area to recover and grow by around 1 to 2 per cent by the end of the year.
It also expects the difference in retail rental rates between Orchard Road and suburban areas to widen again with the stronger recovery in the central shopping belt.
This difference in rates had earlier narrowed from 33.2 per cent in the fourth quarter of 2020 to 15.8 per cent as of the first quarter of this year.
WHAT DEVELOPERS SAY
In response to TODAY’s queries, real estate group Far East Organization said it understands the difficulties that some of its tenants are facing and will engage them on their concerns.“Far East Organization continues to strive to be fair and equitable with our tenants so that together, we are able to weather and steer through the changing commercial landscape and recent challenges,” it added.
“Ultimately, we want to maintain a dynamic, long-term and positive relationship with our partners.”
The property developer manages 17 malls in Singapore, including Clarke Quay Central, Orchard Central and Junction 10.
Frasers Property, which has 13 malls under its portfolio including Century Square, Tiong Bahru Plaza and The Centrepoint, said that it has been offering support for tenants when sales have been badly affected by Covid-19.
These include rental rebates, marketing initiatives, flexible renewals and operational assistance.
“The sustainability of rent is important to both the landlord and retailers and this is an important consideration in our lease discussions,” Frasers Property told TODAY.
It added that it expects the prime suburban retail space to continue to attract good leasing demand and that the rental rates for these spaces are expected to remain competitive.
“We will continue to work with our tenant community to create a tenant mix that serves the needs of our community and offers an exciting shopping experience,” it added.
For Mr Lim, the former fish-soup store owner, switching to the bakery business was a way to cut cost and “Covid-proof” his business by relying more on online sales.
The landlord for the shop space where his bakery stands had reduced monthly rent from S$2,700 to S$1,300 last October for a year.
Now that Covid-19 restrictions have largely eased, Mr Lim said that his landlord is planning to raise the rent to S$2,500.
If that happens, he will close his shop and operate his bakery from home.
“There’s no point negotiating,” Mr Lim said. “If the rent increases, I’ll go.”
