Emerging Trends in Retail Leasing in Singapore: Challenges and Opportunities

Singapore’s retail sector is poised for a dynamic year in 2025, with factors such as tourism recovery, regulatory compliance, and shifting consumer preferences influencing the market. Despite challenges like inflationary pressures and a strong Singapore Dollar, which have led some consumers to seek more affordable options abroad, there are avenues for innovation and growth. For instance, Singapore’s economy demonstrated resilience in 2024, with GDP growth estimated at 3.5% year-over-year, a significant improvement from the previous year’s 1.1% growth.
Emerging Trends
1. Moderate Growth in Prime Retail Rents
Prime retail rents in Singapore are expected to increase by around 2-4% year-over-year in 2024, although growth may slow in the fourth quarter due to high operating costs. This moderate increase reflects a stabilization of growth following previous years of stronger expansion. The rise in rents is influenced by a full tourism recovery and a limited supply of high-quality retail spaces, particularly in prime locations like Orchard Road and Marina Bay.
2. Flight to Quality and Demand for Prime Spaces
The “flight to quality” trend continues to drive demand for premium retail spaces, with tenants seeking high-quality environments that enhance their brand image and customer experience. This trend supports retail rents and leasing activity, albeit with modest growth. As a result, leasing activity is expected to register modest growth in 2025, driven by this demand for quality spaces.
3. Suburban Retail Outperformance
Suburban retail areas are anticipated to outperform central malls in 2025, driven by low vacancy rates and limited new supply, leading to rental reversions of over 5%. This shift highlights the growing appeal of suburban locations for retailers seeking more affordable and accessible spaces. In fact, suburban/city fringe retail supply is expected to surge in 2025, reaching levels similar to the pre-COVID-19 historical annual average.
4. Regulatory Environment and Collaboration
There is an expectation of more collaboration among government agencies in 2025 to promote Singapore as a retail destination, focusing on entertainment and lifestyle concepts to attract visitors and retain local spending. This initiative aims to liberalize the retail market and encourage innovation. Furthermore, the introduction of the Lease Agreements for Retail Premises Act 2023, which includes a Code of Conduct for retail leases, requires landlords to be more transparent and flexible in negotiations, potentially impacting profitability.
5. Economic Resilience and Consumer Behavior
Singapore’s economy demonstrated resilience in 2024, with GDP growth estimated at 3.5% year-over-year, and this momentum is expected to continue into 2025. However, consumer behavior remains influenced by economic factors, with some opting for international destinations for shopping due to the strong Singapore Dollar and inflationary pressures. Inflation has progressively normalized, with core inflation projected to average 2.5-3.0% in 2024, compared with 5% in 2023.
6. Impact of Tourism Recovery
A full tourism recovery is projected to support retail demand, although ongoing challenges may slightly weaken expansionary appetite among retailers. The recovery in tourism is crucial for maintaining a vibrant retail sector, as international visitors contribute significantly to consumer spending. For instance, Singapore’s visa exemption with China may boost tourism, further supporting retail sales.
Challenges and Opportunities
Challenges
- Competition and Market Dynamics: The competitive nature of the Singapore retail market, coupled with external economic factors, poses challenges for retailers and landlords seeking to maintain profitability and attract tenants. The strong Singapore Dollar and rising operational costs, such as manpower expenses, have further complicated this landscape.
- Regulatory Compliance: The need to comply with the Code of Conduct for retail leases requires landlords to be more transparent and flexible in negotiations, potentially impacting profitability.
- Consumer Preferences: Shifting consumer preferences towards experiential retail and sustainable practices necessitate investments in amenities and technologies to enhance the shopping experience.
Opportunities
- Innovation and Collaboration: The push for innovation and government-private sector collaboration offers opportunities for creative retail concepts and public-private partnerships to manage costs and promote value creation. This can lead to more vibrant and competitive retail environments.
- Suburban Retail Growth: The anticipated outperformance of suburban retail areas presents opportunities for landlords and retailers to capitalize on growing demand in these locations. Suburban malls are increasingly attractive due to their accessibility and affordability.
- Diversification of Tenant Base: The influx of new international retailers and local brands can diversify the tenant base, enhancing the retail landscape and providing more options for consumers. Local malls have seen a rise in international F&B brands, which view Singapore as a strategic foothold for expansion in Southeast Asia.
Market Statistics and Insights
- Retail Vacancy Rates: The island-wide retail vacancy rate in Singapore has continued to ease, reaching a 10-year low of 6.5% in Q3 2024, down from 6.6% in Q2 2024.
- Supply Pipeline: While retail supply is expected to surge in 2025, the pipeline is anticipated to be limited in 2026 and 2027, which could support rental growth in the short term.
- Economic Growth: Singapore’s economy is projected to grow steadily in 2025, supported by a tight labor market and higher export growth, which will likely sustain domestic consumption and retail demand.
Conclusion
The retail leasing market in Singapore is navigating a complex landscape of challenges and opportunities in 2025. By understanding these emerging trends and adapting to market dynamics, regulatory changes, and consumer behavior, landlords and retailers can position themselves for success in this competitive environment. Key strategies include focusing on prime locations, leveraging suburban growth, and embracing innovation and collaboration to enhance retail experiences. Additional Resources:
- FPA Financial Report: For insights into prime retail rent growth and market trends in Singapore.
- JLL Insights: Offers perspectives on pockets of opportunity in Singapore’s retail property market.
- CBRE Market Outlook: Provides an overview of the Singapore real estate market, including retail trends and expectations for 2025
Empowering Businesses with SGTUFF
At SGTUFF, we believe in creating a level playing field for businesses in Singapore. Whether you’re a tenant navigating leasing challenges or an SME striving for growth, we provide resources and insights to help you succeed.
Here’s how you can get started:
- Become a Member: Unlock exclusive tools and networking opportunities with our Membership Plans.
- Learn More: Gain practical insights into fair tenancy practices with our guide: Master the Code of Conduct for Retail Leasing.
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