90
CapitaLand Mall Trust
Annual Report 2015
Independent Retail Market Overview
Occupancy Rates Outlook
(%)
Sources: URA and Urbis.
2012
95.1
2012
94.4
2013
95.7
2013
93.8
2014
94.6
2014
92.8
2015
94.4
2015
92.4
2016
94.5
2016
92.4
2017
95.2
2017
93.5
2018
95.5
2018
94.0
Suburban
Orchard Road
Forecast
Forecast
Retail Rents and Occupancy
It is clear that 2015 has been a difficult year for the
retail market. As further evidence, 2015 saw the closure
of various department stores such as two John Little
stores (Marina Square and Tiong Bahru Plaza), a Marks
& Spencer (Centrepoint) and an Isetan (Wisma Atria)
and the exit of Japanese fashion brand Lowrys Farm
amidst a subdued retail landscape. The challenges
facing the retail market are ongoing.
The Orchard Road sub-market has been particularly
hard hit, attributed to combination of a subdued
tourism industry, and increasingly sophisticated retail
offerings by suburban malls. These challenges have
been exacerbated by strong floor space growth in the
Orchard Road sub-market, resulting in occupancy at a
historical low of 92.4%.
The problem of rising vacancy and competition from
new and refurbished malls, especially those in the
suburban areas, has also placed downward pressure
on retail rents in the Orchard Road sub-market. In the
fourth quarter of 2015, rent fell for the fourth consecutive
quarter leading to a rental decline of 1.0% over the
12 months to December 2015. Apart from offering lower
rents to retain tenants, landlords have to offer shorter
leases of three to six months for pop-up stores in hope
of attracting retailers to fill up vacant spaces.
Suburban malls on the other hand have fared slightly
better. In 2015, while rents declined by 1.0%, occupancy
remained relatively healthy at 94.4%.
Retail rental growth in the short term is expected to be
modest as retailers look to consolidate their operations
as well as enhance their e-commerce presence in
the current tough retail landscape and increasing
competition. With new and enhanced malls entering the
retail landscape, it is expected that landlords will focus
on their tenant mix to remain competitive.
Over the next six to 12 months, we do not expect to
see any rental growth in either the Orchard Road or
Suburban sub-market. Indeed, we expect the Orchard
Road sub-market to see further rent declines as current
excess space is re-absorbed.
In the longer term, as the market improves, we expect
stronger growth in retail sales to support improved
growth in rents as well as improved occupancy.
In the Suburban sub-market, we expect annual
rental growth of 1.5% and 2.0% for 2017 and 2018
respectively, slightly higher than our expectation for the
Orchard Road sub-market. Occupancy of the Suburban
sub-market is already quite healthy, so it is unlikely
to change significantly, while at the Orchard Road
sub-market the current excess space is expected to be
absorbed over this period and this in turn, will increase
the occupancy level.
