Retail space is buoyant

By Desmond Ng

THE property market has been weak, and rents have been dipping.

That's true for housing, and, especially, for office space.

But not for retail space.

In fact, a retail outlet smaller than a four-room flat can cost as much as $30,000 a month, or $1,000 a day.

And not on Orchard Road, mind you, but in the suburbs.

Figures from Jones Lang LaSalle, published last week, show that average rents for prime-level shop space rose 0.4 per cent on Orchard Road, and 0.2 per cent in the suburbs, in the third quarter.

Strong demand and limited new supply will ensure that rents remain stable, the property consultancy said.

And even with high rents, the tenants we spoke to are turning a profit. Like the BreadTalk outlet at the HDB Hub at Toa Payoh Central.

BreadTalk wouldn't reveal the amount it pays, but the average monthly rent for the retail units in the building is about $29.50 psf, according to HDB. The BreadTalk outlet is about 1,000 sq ft.

BreakTalk group general manager Frankie Quek felt the rent is reasonable, as their outlet is very close to the Toa Payoh MRT station and bus interchange.

There are 23 Breadtalk outlets in Singapore, and Mr Quek said: 'This Toa Payoh branch is one of our top performers, even with other bakeries around. I guess with the competition, there's a synergy here and we can draw more crowds here with more choice.'

Breadtalk sells over 160 different items.

The Toa Payoh branch alone sells 5,000 to 8,000 buns a day. So it is not surprising that they can afford the rent.

At $1 a bun, that works out to about $240,000 in sales a month ($1 x 8,000 x 30 days).

And that is not including sales of other items such as cakes and bread.

According to the figures from Jones Lang LaSalle, the average retail rental rate for prime first-level shop space in Grade A malls in the Orchard Road belt was $36.90 psf a month.

For suburban shopping areas, it was $25.05 psf a month.

IN THE BLACK

Yet, despite the struggling economy, many businesses in these high rent places managed to stay in the black.

Elai Sushi, just outside the HDB Hub at Toa Payoh, pays about $30,000 a month for their 900 sq ft shop.

Owner Patrick Lee said his start-up capital costs came to about $500,000, including renovations and three months' rent.

He said they are doing well although there are two other sushi restaurants nearby.

Mr Lee said: 'During the Sars outbreak, our business dropped by 20 per cent. But business has improved slightly since then. We are struggling but can still remain profitable.'

Over at Holland Village - another prime suburban area - Anthropology Homeware pays just below $10,000 for its 1,200 sq ft shophouse above Thai Express.

Even with no visible frontage exposure, the shop recently celebrated a profitable first anniversary and is even considering a second outlet next year.

The company spent about $60,000 to $70,000 to spruce up the place initially.

Director Jermyn Toh felt the rent was worth every cent.

'Part of the investment is location rental. Anywhere you go, be it Orchard Road or Holland Village, it helps in terms of the brand image you want,' he said.

'Let's say if we were located in Yishun or Bukit Merah, the image would be very different. So, we are quite careful in terms of the location we pick.'

Assistant Professor Muhammad Faishal of the department of real estate at the National University of Singapore (NUS) agrees.

This is how he sums it up: 'Rental rates for residential and office space have softened over the past few years. But the retail segment seems to be quite stable.

'This depends on the location. In the suburbs, the rates are quite competitive, and where demand has been encouraging, this will be reflected in the rent.'


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Image and positioning affect choice of location

A GOOD location does not just mean high traffic. It has to be the right kind of traffic for what you're selling.

Marketing professor Trichy Krishnan from the NUS Business School explained that two considerations for choosing a location are image and positioning - to be seen as a the kind of store that has chosen a particular area.

'In general, prime location is sought for ensuring high traffic,' he said.

'It is an old adage that the three main success factors for a retailer are location, location and location.

'Prime location means higher overheads, which can be recouped through margins...

'And higher margins are possible with target customers who are willing to pay for a good ambience, exclusivity, committed service, personalised attention and assured top quality of goods.'

He added that goods sold at such locations are not usually necessities and more of the 'luxury' type, on which higher profit margins are possible.