Prime rents are still in demand even as the overall average monthly rents remained flat in Q1
Savills maintains outlook for prime retail rents at upper end, suburban malls at lower end of forecast
Savills Research shared that the islandwide retail vacancy went up from 6.2% in the previous quarter to 6.8% in Q1. This could be due to new space such as the recently completed Punggol Coast Mall and the revamped The Cathay taking time to be absorbed into the market, thus putting more pressure on islandwide retail vacancy. Net demand registered -129,000 sq ft in the first quarter as occupied space fell across most areas after five quarters of positive net take-up.
Savills expects pipeline supply of retail space to remain relatively steady this year at around 597,000 sq ft of Net Lettable Area (NLA), down slightly from the 679,000 sq ft completed in 2024. A significant increase in supply, exceeding 1.2 million sq ft NLA, is anticipated in 2028, with major projects such as the Marina Bay Sands expansion slated for completion. This translates to an average annual supply of 659,000 sq ft NLA from 2025 to 2029, notably higher than the five-year historical average of 445,000 sq ft per year from 2020 to 2024. In the near term, however, the relatively limited pipeline of under 400,000 sq ft NLA annually over the next two years may help ease pressure on retail occupancy and rents. (See Table 1)
While overall demand has softened, some landlords of the prime malls along Orchard observed healthy momentum for lease renewals, especially among luxury retailers. Despite challenges like rising costs and a tight labour market, landlords along Orchard Road can still command higher rents for lease renewals due to limited supply and strong demand from high-end brands seeking presence in Singapore’s premier shopping district. Even when existing tenants move out, prime spaces are often swiftly taken up by retailers entering the Singapore market for the first time. For instance, Japanese thrift shop giant 2nd Street took over the premises in the basement at 313 Somerset which was vacated by clothing retailer Pomelo.
Nevertheless, there are signs that prime retail rents may be coming under pressure this quarter despite ongoing growth. According to the Urban Redevelopment Authority’s (URA) rental index, rents in the Central Area slipped by 0.2% quarter-on-quarter (QoQ), while those in the Fringe Area declined by 1.1% QoQ in Q1. This resulted in a 0.5% QoQ decline in the Central Region’s rental index. For Savills' basket of retail properties, the average monthly rent in the Orchard Area and Suburban Area remained flat at S$23.20 psf and S$14.70 psf respectively in the first quarter.
Singapore’s export-reliant economy faces growing headwinds from elevated global trade tensions, particularly in 2H/2025, which may dampen business sentiment, hiring, and wage growth – ultimately weighing on retail sales. Consumer-facing sectors such as retail and F&B are expected to see tepid growth, as local spending continues to flow overseas amid sluggish labour market conditions.
Meanwhile, the meetings, incentives, conventions and exhibitions (MICE) segment stands out as a key growth driver. With MICE visitors currently spending twice as much as leisure travellers, Singapore’s plans to triple MICE receipts by 2040, bolstered by the upcoming MICE hub, could bring long-term spillover benefits to retail sectors, especially in key precincts. By then, MICE receipts are projected to contribute to about 10% of overall tourism spending, up from the current 4%. This would in turn help to lift the overall retail spending in Singapore.
Despite improved foot traffic in some Orchard Road malls, revenue growth remains constrained by cost pressures, elastic consumer spending, and the rise of online shopping. Suburban malls, too, are grappling with thinner margins due to changing consumer preferences and a rise in alternative dining and retail formats.
Alan Cheong, Executive Director, Research & Consultancy, Savills Singapore commented, “We expect to see more tenant turnover in malls this year, as underperforming retailers either ride out their leases or exit early if they can’t keep up with costs. While prime spaces are still being snapped up quickly, the rate of closures could soon outpace new openings. That said, Orchard rents are likely to hit the upper end of our 1% to 2% growth forecast in 2025, while Suburban rents may hover near the lower bound.”
Sulian Tan-Wijaya, Executive Director, Retail & Lifestyle, Savills Singapore said, “Demand for spaces in Orchard and other prime city centre locations continue to be driven in part by overseas brands wanting to expand into Singapore. We are seeing more cases of existing tenants wanting to pre-terminate their leases.
This would have pushed up vacancy rates if not for new entrants taking up their spaces. For less prime developments, it could take some time for vacant spaces to be let, due to current market conditions leading to many operators adopting a “wait and see” approach.”
