www.shaproperty.com

This recovery also marks a new era for the industry, driven by the proposed integrated resorts and the increasing number of real estate investment trusts (Reits).

 

For a start, Singaporeans and tourists alike will have a bigger choice of shopping malls, after an eight-year lull in new supply of space. More than six million square feet of new retail stock (equivalent to 18 per cent of the current retail stock) will enter the market over the next four years. This will add 21 malls in both new and established retail locations.

 

The first new mall after a long hiatus is VivoCity at HarbourFront, which opens in October. With over one million square feet of retail and entertainment space, VivoCity will be 40 per cent larger than Suntec City Mall, and the largest mall in Singapore when completed.

 

The spate of new completions will climax in 2008 and 2009 when Orchard Road will see three new malls, increasing the total retail floor area in the prime shopping belt by a whopping 30 per cent. The new jewel of Orchard Road will come up at Orchard Turn and will be about the size of Ngee Ann City.

At the former Glutton's Square, a smaller mall with some 275,000 sq ft of lettable space will come up. A third site, next to Specialists' Centre, could see a mixed development with some 200,640 sq ft of retail space.

 

At around the same time, a new retail node will be born when the two integrated resorts in Marina Bay and Sentosa are completed with a combined lettable retail area of 861,110 sq ft.

 

Aside from new destinations, shoppers can expect to see existing malls rejuvenated. With more quality commercial buildings joining the Reit bandwagon, Reit managers have to work harder at maximising returns on their property portfolios for unitholders. As such, shoppers can expect new space-utilising concepts from Reits to generate higher rental revenue, major building revamps, new retailers and novel shopping ideas.

 

CapitaMall Trust (CMT) has been one of the more aggressive players in this respect. Most of its assets - among them IMM Building, Tampines Mall, Junction 8 and Funan DigitaLife Mall - have been rigorously enhanced over the last few years.

 

The relentless drive to revamp and raise returns by Reit managers is also pushing owners of other malls to improve their offerings. One significant trend is the eroding importance of anchor tenants. In the past two years, smaller specialty stores have replaced several anchor stores in malls. These include two Metro outlets in Far East Plaza and Marina Square which were replaced by small local shops such as Ice Lemon Tree, 77th Street, Craft IV and Pure Milk.

Shoppers can expect to see the rise of the small specialty store. In addition, established foreign labels that have won a strong following among well-travelled shoppers will be showcased in the new shopping malls. Possible new entrants include Victoria's Secret, J Jill, H&M, Abercrombie & Fitch and NEXT.

Other trends that are still in the exploratory stages include 24-hour shopping and warehouse retail schemes. The latter involves 'big box' retailers setting up in suburban areas and offering a huge variety of goods and bulk discounts.

For mall owners and developers, understanding the psyche of today's shopper is a brand new area of study. The expectations of shoppers are certain to be higher than ever. With Internet access and budget airlines, Singapore consumers are becoming more exposed to global shopping trends compared to 10 or 20 years ago.

 

Sensitivity to changes in fashion and technology trends is also much keener. The cosmopolitan, savvy consumer will not accept copycat trends. This explains why some 'small shop' concepts which offer no clear differentiation have failed. Also, malls that duplicate the tenant mix and chase after the same few successful retailers will no longer work.

 

What is needed are bold new retailing concepts and products. One new concept is to blend shopping with entertainment or lifestyle. An example is Harnn & Thann, a Thai brand of bodycare and aromatherapy products that uses its products in spa services offered in the same store.

 

With the right formula, Singapore could be on its way to becoming the hub for international retailers and a true shopping haven. The government's ambitious efforts to remake Orchard Road will boost its position in the international arena. And the two integrated resorts with casinos are set to draw droves of visitors, including the rich and the famous, when completed. These will be the twin forces driving Singapore's retail industry and providing a compelling reason for international retailers to set up here.

 

On the downside, however, retailers will have to contend with the prospect of rising rents, not only due to the market recovery but also because percentage lease agreements are becoming a common feature with the entry of Reit landlords. This rental structure typically takes the form of tenants paying a lower fixed rental rate and a percentage of gross turnover.

 

Another common practice is for tenants to pay a fixed rental rate or a percentage of gross turnover, whichever is higher. While such a rental structure gives retailers some flexibility, it could result in higher rentals being paid by thriving businesses. Whether the influx of new retail space puts downward pressure on future rents remains to be seen.