High rents in hot spots due to competition

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SOARING rents have forced retail executive Anil Konidena to shut two of his firm's stores in Singapore with more to soon follow.

"Rent escalation in Singapore is completely disproportionate to sales growth," Mr Konidena, chief operating officer of RSH Limited, told The Straits Times in a recent interview.

"It's disconnected with the fundamentals. Rental can be anything as long as it's affordable, and it's affordable when it's a smaller proportion of total sales."

Many retailers are bemoaning the fact that higher rents combined with ballooning labour costs are eating away at their earnings.

Analysts noted that competition for limited space in popular destinations is driving up rents, as demand for these spots outstrips supply.

"Where vacancy in the retail market is tight, landlords... of better-performing malls will be able to exert more control over the setting of rents," said CBRE research head Desmond Sim.

Retailers in the prime shopping belt along Orchard Road may also have to compete with international players with deeper pockets, analysts said.

However, they predict that retail rents could weaken this year due to lower tourist spending - even for prime Orchard Road space - but that might bring only partial relief.

Inflation and a manpower crunch will "further increase the already high business costs in the prime shopping area", making it tougher for shops to keep afloat, said Savills research head Alan Cheong in a report yesterday.

RSH's operating costs are so high that Singapore now has the biggest proportion of loss-making stores out of the 14 countries the firm operates in, Mr Konidena told The Straits Times.

"That's including Hong Kong and Australia, (both) high-cost markets. Even in Australia, where the store operating hours are shorter, we have a smaller proportion of loss-making stores."

Rent, which made up 32 per cent of retailers' costs in 2011, and the issue of its sharp rise, have come under the spotlight in recent weeks.

RSH, which has stores selling high-street clothing labels such as Zara, Mango and Stradivarius, leases around 130 shops here. Its rents can go up by anywhere from 3 per cent to as high as 30 per cent upon renewal depending on the store, said Mr Konidena.

"If we are finding it so challenging, what about the smaller, independent, one- or two-brand retailers?"

Pure shops are not the only types of retailers feeling the heat.

Food and lifestyle group Spa Esprit, which is behind well-known brands such as Skinny Pizza and Tiong Bahru Bakery, also told The Straits Times that its rents have gone up in recent years.

Founder and managing director Cynthia Chua said rents have generally risen by 10 to 20 per cent a year for its stores located in malls.

Rents for some non-mall shops such as its eateries in Tiong Bahru have as much as doubled, she said, though she noted that the initial rent was a "low base".

"On top of rental, there's also manpower issues and food costs," she added.

However, not all parts of the island have seen a relentless rise in retail rents. Just a minute's walk from the gleaming facades and polished corridors of the newer malls lining Orchard Road, there are pockets of retail space where rents have fallen recently.

Some units have been vacant for months in the strata-titled Lucky Plaza, for instance, said tenants there when The Straits Times visited earlier this week.

Private investor Sameer Aswani told The Straits Times that he lowered the rent at his shop in People's Park Complex in Chinatown earlier this year.

"I dropped the rental in January from $6,500 to $6,200 or my tenant was going to move," he said, adding that he has kept rents steady at his shop in Sim Lim Square.

Bukit Timah Shopping Centre is another mall that has seen rents fall recently, analysts said.

A study by the Ministry of Trade and Industry last week found that up to a quarter of retailers every year would have no rent increase or would even see their rents drop when they renewed.

melissat@sph.com.sg

Source: Straits Times, 29 May 2014