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(SINGAPORE) The upward spiral of prime retail rents will continue next year, and possibly beyond.

Insatiable demand: Mega-mall VivoCity could do little to cool surging rents amid tight supply of retail space despite having 1.1 million sq ft of lettable area

Property consultants and analysts said that after rising 4 to 5.3 per cent this year, prime shop space rents could surge as much as 8 per cent next year as supply remains tight.

Even mega-mall VivoCity, which officially opened its doors earlier this month with 1.1 million sq ft of lettable area, did little to cool rents.

Demand has been so strong that additional space from new shopping centres and extensions to existing malls had also been soaked up. Retail complexes which increased their space included Centrepoint, which added a new wing comprising 58,000 sq ft.

CB Richard Ellis (CBRE) said its islandwide prime rental index is expected to end 4.3 per cent up in 2006, the biggest increase in five years. 'Average prime rent in Orchard Road in the first quarter of 2006 was $33.30 per sq ft per month (psfpm). It is now $34.50 psfpm,' said Mavis Seow, director for retail services at CBRE.

'We have seen the emergence of several specialised malls and this trend is set to continue.' - Chua Yang Liang, Jones Lang LaSalle's head of research

And looking ahead, retail rents are expected to grow at an even faster clip as there will hardly be any new supply of retail space coming up until 2009 - when Orchard Turn is expected to be completed, followed by the completion of two other developments in Orchard Road by developers Far East Organisation and Land Lease.

This means rental increase next year could outstrip this year's, with estimates for 2007 ranging from 4-8 per cent.

'For the whole of 2007, supported by the Singapore Tourism Board's (STB) positive outlook, rental growth should remain in the region of 4-4.5 per cent,' said Chua Yang Liang, Jones Lang LaSalle's (JLL) head of research. Rentals should also be boosted by increased retail takings next year, as most landlords take a percentage cut of their tenants' gross turnover, Dr Chua said. Retail sales are expected to climb next year on the back of an improving economy.

The good news for landlords - and probably not so good news for tenants - is that rents are expected to climb even past 2007. Macquarie Research, for one, expects increases of 5-8 per cent a year until 2009.

But it expects growth to slow down thereafter with new space coming onstream along Orchard Road, and when retail space in the two upcoming integrated resorts kick in. The two resorts alone will add about 1.3 million sq ft of retail space.

Other than a slowdown in rental growth, landlords will face increasing competition once all the new developments are up, said market observers. JLL's Dr Chua said: 'New malls will have to continually differentiate themselves from the herd. We have seen the emergence of specialised malls and this trend is set to continue.'

Other new trends to emerge would include mall owners' increasing preference for smaller outfits over large anchor tenants, the addition of push carts and kiosks in malls, an increased food and beverage (F&B) component in shopping centres and the development of more niche F&B enclaves all over the island, said Tay Huey Ying, director for research and consultancy at Colliers International. Just in the past one year, places such as Dempsey Road, Rochester Park and Upper Thompson Road have become F&B havens.

As for shoppers, further variety can be expected, with more local and international brands making their way to Singapore.

This year, Gap, Ted Baker, Pull and Bear and a few other Spanish retailers set up shop here. Next year, besides new entrants, existing international retailers are also expected to continue extending their presence through more standalone, flagship or concept stores.

Said Macquarie property analysts Tuck Yin Soong and Elaine Cheong. 'Given the lower retail space per capita in Singapore relative to other mature markets, we believe there is enough room for these new brands in Singapore.'