RESEARCH & FORECAST REPORT SINGAPORE REAL ESTATE MARKET. Retail Market RETAIL SALES PERFORMANCE (EXCLUDING MOTOR VEHICLES)

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1 3Q 2012 RETAIL RESEARCH & FORECAST REPORT SINGAPORE REAL ESTATE MARKET Retail Market Singapore s retail property market maintained its resilience with unrelenting new store and restaurant openings in 3Q 2012, even as the uncertain economic outlook took a toll on consumer sentiment. MARKET INDICATORS Prime Rents Prime Capital Values Singapore s retail sales index (excluding motor vehicles) fell by a steeper than expected 1.6% yearon-year (YoY) in July This was despite the two-month long Great Singapore Sale which ended on 25 July Weaker sales were recorded for most segments, with deeper falls seen for those catering to discretionary spending as economic uncertainty curtailed such consumption. For example, sales of watches and jewellery plunged by 7.2%, while sales receipts at department stores, optical goods & books, recreational goods, and wearing apparel & footwear fell by between 3.3% and 3.8% YoY. RETAIL Singapore s retail property market maintained its resilience with unrelenting new store and restaurant openings even as the uncertain economic outlook took a toll on consumer sentiment. RETAIL SALES PERFORMANCE (EXCLUDING MOTOR VEHICLES) Retail Sales Index (2010=100, at Constant Prices) % 20% 15% 10% 5% 0% -5% YoY % Change Singapore s retail sales index (excluding motor vehicles) fell by a steeper than expected 1.6% year-on-year (YoY) in July % Singapore s retail property market, however, stayed buoyant The overall level of activity was also supported by the constant introduction of new brands, food and beverage (F&B) concepts and the expansion of existing chains. Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Index YoY Change Source: Singapore Department of Statistics/Colliers International Singapore Research Singapore s retail property market, however, stayed buoyant with the opening of a new mall, The Star Vista at the Vista Exchange in the one-north precinct, as well as the completion of refurbishment works at Bugis+. The overall level of activity was also supported by the constant introduction of new brands, food and beverage (F&B) concepts and the expansion of existing chains. Unfazed by the external uncertainties and its potential drag on consumer spending, renowned F&B chefs and international brands were still looking for viable locations in new and existing malls to establish or reinforce their presence in Singapore, convinced of the city-state s long-term potential as a focal point for the region s growth. At the same time, local entrepreneurs who have amassed some capital for themselves in the last few years of economic prosperity remained keen to make forays into the retail sector by opening stores as well as eateries.

2 The mom-and-pop HDB shops in town centres or at the ground level of HDB blocks selling convenience goods and sundry products are making way for major chains. Of significance, The Star Vista, located next to the Buona Vista MRT Interchange, opened its doors to shoppers in mid-september. The 15-storey mixed-development will comprise a Civic and Cultural Zone with a 5,000-seat auditorium, as well as a Retail and Entertainment Zone. Serving more than 400,000 residents, students and working population in the vicinity, The Star Vista features eateries such as Brozeit, Boston Seafood Shack, District 10 Bar and Owl Café, as well as stores that include Digital Style, Courts and Cold Storage. Elsewhere in the Central Area, Bugis+ the former Illuma which underwent a $38-million revamp from mid-november 2011 to July 2012 when the interior was renovated and escalators repositioned to make it easier for shoppers to traverse the mall saw the introduction of an estimated 77 new stores. These included fashion brands such as Uniqlo, Japanese casual wear label Lowrys Farm and Mango. With some 94 tenants, the mall s occupancy rate was reported at 99% as of 3Q Over at Singapore s three riverfront quays Boat Quay, Clarke Quay and Robertson Quay, a string of new F&B openings took place during the quarter even before plans to improve their connectivity was announced by Singapore River One, a new organisation. Wings Bar, a 1940s aviation themed restaurant; Little Saigon, a Vietnamese restaurant; Mad For Garlic, the second outlet of the Korean franchise; and Boss BarBQ, a Korean barbecue restaurant, were all new to Clarke Quay. Pirates on Robertson Quay, a pirate-themed restaurant; SQ11 Deli & Café; and Wharf, an oyster bar, set up at Robertson Quay. The Juban Stand, fashioned after Tokyo s standing bars and Katanashi, a Japanese-fusion restaurant, have established themselves at Boat Quay. While shopping malls both in the Central Area (in Orchard Road and City Hall) and the Regional Centres (in suburban residential estates) continued to have new store and F&B outlet openings, the retail landscape in the HDB heartlands has been undergoing a transformation of its own with major chains opening in these residential areas. Sheng Siong Supermarket opened three new supermarkets in the three months ending in September 2012, at Bukit Batok West, Yishun Central and Bedok North. The mom-and-pop HDB shops in town centres or at the ground level of HDB blocks selling convenience goods and sundry products are making way for major chains. These include supermarkets (such as NTUC Fairprice, Shop N Save and Sheng Siong), convenience stores (7-Eleven and Cheers) and pharmacies (Watsons and Guardian). Old-timers running family businesses in HDB shops, at times, have no one to pass on the sundry business to, and as a result the commercial space is assigned or re-tenanted to one of the major chains with the financial muscle to pay a premium to have their branches in as wide and dense a network as possible. With the continued stream of retail and F&B openings propping up broad-based demand, monthly prime ground floor rents in Orchard Road as of the end of September remained unchanged from the previous quarter staying firm at $37.58 per sq ft. Thus far in 2012, rents of prime rental space in the premier shopping belt have fallen by a slight 1.9%. The average AVERAGE MONTHLY GROSS RENTS OF PRIME RETAIL SPACE (BY MICRO-MARKET) S$ per sq ft per month $45 $40 $35 $30 $25 With the continued stream of retail and F&B openings propping up broad-based demand, monthly prime ground floor rents in Orchard Road as of the end of September remained unchanged from the previous quarter staying firm at $37.58 per sq ft. $20 1Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 2012 Orchard Road Regional Centres Source: Colliers International Singapore Research P. 2 COLLIERS INTERNATIONAL

3 As competition intensifies shopping centres have had to look for ways to draw the shopper crowd and to keep them in the malls for longer durations. Competition was also evidenced in the market for strata-titled shop space, as capital values chalked up a quarter-on-quarter (QoQ) growth averaging 2.0% to end 3Q 2012 at $6,608 per sq ft for prime Orchard Road space Looking at the last three months of 2012, consumer sentiment could rebound in light of the latest round of Quantitative Easing (QE3) by the United States Federal Reserve... the year-end festive shopping season and tourist arrivals monthly gross rent of prime space in Regional Centres was also stable at $33.50 per sq ft per month, after dropping by 0.9% in the previous quarter. By and large, retail rents have been holding steady and are as yet not facing any downward pressure. As competition intensifies from a greater variety of shops and eateries making their debut in the Singapore scene, shopping centres have had to look for ways to draw the shopper crowd and to keep them in the malls for longer durations. To this end, many have opted to provide more common facilities and amenities. For example, free Wi-Fi access is now a musthave. Some malls work with Wireless@SG operators, where costs can be shared, while others invest in the full cost of a standalone system. CapitaMalls Asia provides Wireless@ SG at 11 of its 15 malls in Singapore, including Ion Orchard, Raffles City, Funan DigitaLife Mall and Bugis Junction. This access is mall-wide, and not just confined to F&B outlets. Far East Organization s Orchard Central and AsiaMalls Management s Tampines 1 also provide Wireless@SG access mall-wide. Other shopping centres incorporate familyfriendly features and facilities to create a conducive retail environment for families with children. At Northpoint Shopping Centre in Yishun, these include nursing rooms, children s play areas, free kiddy-carts and wheelchairs, and children s programmes to keep the young ones entertained while parents shop or visit the bank. And the Government is getting on board to help. It is reviewing the Businesses for Families Grant, which helps businesses to invest in family-friendly amenities or programmes for their customers. Under the scheme, businesses can get funding for up to 70% of the costs for projects, up to $50,000 for those with single outlets and $80,000 for those with multiple outlets. Currently, 378 business outlets are accredited as family-friendly businesses and they include many retail-related venues such as malls, food chains, restaurants, educational services and banks. The buzz in the retail sector is not limited to just leasing activities in shopping malls and HDB heartland shops. Competition was also evidenced in the market for strata-titled shop space, as capital values chalked up a quarteron-quarter (QoQ) growth averaging 2.0% to end 3Q 2012 at $6,608 per sq ft for prime Orchard Road space, after increasing 2.0% in the previous quarter. With the ongoing interest in strata-titled shops in mixed developments, often in suburban areas, the prime capital values in the Regional Centres improved 3.0% QoQ to $4,032 per sq ft from the $3,915 per sq ft in 2Q The volume of sales of strata-titled shops continued to be brisk maintaining the momentum that started in the first quarter of the year. In the third quarter, there were 194 caveats lodged for these premises according to the Urban Redevelopment Authority s Real Estate lnformation System (REALIS), bringing the year-to-date total to 981 units. This is currently some 55.2% more than the 632 caveats registered for the whole of Of the 981 strata-titled shop sales in 2012 thus far, 611 units or 62.3% are new sales bought directly from developers of yet-to-be built properties. During the quarter, new strata-titled shops at The Promenade@Pelikat in Hougang and Bugis Cube sold briskly. The Promenade@Pelikat is a mixed-use development with 270 shop units and 164 residential apartments. Most of the shop units have been sold at an average of around $2,000 per sq ft. Bugis Cube is a 999- year leasehold development comprising six floors of retail and F&B space located opposite Bugis Junction. The average selling price is estimated at $4,500 per sq ft. Looking at the last three months of 2012, consumer sentiment could rebound in light of the latest round of Quantitative Easing (QE3) by the United States Federal Reserve. Retail sales will also be augmented by the year-end festive shopping season and tourist arrivals which look on track to meet the Singapore Tourism Board s projection of 13.5 to 14.5 million visitor arrivals in Some 5.9 million visitors have set foot on the island city in the first five months of This number can only swell further, taking into consideration arrivals arising from the Formula One night race in September, the June and December school holidays and the traditional year-end festive season. Yet despite the retail sector s resilience, retailers and F&B operators have to face the growing challenges brought on by increased competition. Amid reports of new and exciting dining experiences arising from the stream of new arrivals and openings, intense competition has also resulted in high attrition of F&B businesses. COLLIERS INTERNATIONAL P. 3

4 The ever-widening spread of shopping and dining options in popular and niche locations should result in stable rents in both Orchard Road and the Regional Centres until the end of 2012 keeping to within minus 3% for the whole of PERFORMANCE OF TOURISM INDUSTRY 1,400,000 1,200,000 50% 40% Some 5.9 million visitors have set foot on the island city in the first five months of Number of Visitors 1,000, , , ,000 30% 20% 10% 0% YoY % Change 200,000 0 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12-10% -20% Visitor Arrivals YoY Change Source: Singapore Tourism Board/Colliers International Singapore Research According to the Accounting and Corporate Regulatory Authority (ACRA), although 642 restaurants commenced operations in 2011, some 583 restaurants were closed in the same year, resulting in a net increase of only 59 establishments. Although 2012 is looking brighter with the first half of the year reporting an improved net increase of 107 F&B establishments, attrition remained high. Specifically, the period from January to June 2012 saw 359 restaurant start-ups but some 252 establishments were closed. and new strata-titled shops from investors and end-users remains healthy. Attrition aside, retailers and F&B establishments also face operational challenges such as staff shortages which is limiting their ability to provide quality service. It was recently reported that many eateries were between 10% and 50% understaffed and this has been further exacerbated by new Manpower Ministry measures stipulating a lower dependency ratio on foreign manpower. As a result, many restaurateurs are hesitant to expand because of the manpower shortage. This shortage of service staff also extends to retail shops. This will have a bearing on the demand for retail space. The overall competition in the retail and F&B sectors has led to an evolution that for the most part has benefitted Singapore with more choices and vibrancy, despite the mounting challenges. The ever-widening spread of shopping and dining options in popular and niche locations should result in stable rents in both Orchard Road and the Regional Centres until the end of As such, retail rents should remain firm and are unlikely to fall discernibly in the remaining three months of the year, keeping to within minus 3% for the whole of At the same time, capital values will continue to move in an upward direction as interest for existing P. 4 COLLIERS INTERNATIONAL

5 Notes: 522 offices in 62 countries on 6 continents United States: 147 Canada: 37 Latin America: 19 Asia Pacific: 201 EMEA: 118 $1.8 billion in annual revenue 1,250 million square feet of property under management Over 12,300 professionals SINGAPORE: Colliers International 1 Raffles Place #45-00 One Raffles Place Singapore, TEL FAX RCB NO E RESEARCHER: Chia Siew Chuin Director singapore.research@colliers.com This report and other research materials may be found on our website at Questions related to information herein should be directed to the Research Department at the number indicated above. This document has been prepared by Colliers International for general information only. Colliers International makes no guarantees, representations or warranties of any kind, express or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This publication is the copyrighted property of Colliers International and/or its licensor(s) All rights reserved. Accelerating success.