Malls sweeten lease deals amid tricky retail scene

SINGAPORE — Amid a multiple whammy hitting the retail scene, mall owners are re-looking their leasing strategies and throwing in incentives such as extending the rent-free settling-in period, and lowering rentals on longer leases, which are as long as five times (or more) the standard three-year duration.

Brick-and-mortar retailers here have been buffeted by the economic slowdown, competition from e-commerce, the manpower crunch, rising business costs and lacklustre tourist spending, among other things.

Despite the gloom, big-name retailers are signing long lease agreements. The idea, said industry players, is to take advantage of softening rents to position for the long-haul.

By the end of the year, international lingerie brand Victoria’s Secret and American fashion company Michael Kors are opening their first flagship stores in Singapore at Mandarin Gallery on Orchard Road after signing leases of 10 and seven years respectively. French sporting goods retailer Decathlon signed a lease of more than 15 years for its 35,000sqft outlet at Viva Business Park in Chai Chee. Mandarin Gallery is managed by Overseas Union Enterprises (OUE). OUE senior vice-president of retail, marketing and leasing Patrina Tan said: “The capital expenditure on big outlets like the flagship stores are much higher, with returns spread over a larger period of time. Hence, the long-term leases work well with bigger players.”

In return, the landlords can “leverage on these marquee brands to draw other big-name retailers to their malls”, said Savills Singapore research head Alan Cheong. “Such signage carries certain advantages ... apart from rental stability and higher footfall.”

Property analysts said that both landlords and retailers are using long leases to mitigate the many challenges facing the industry. Ms Christine Li, director of research at Cushman & Wakefield in Singapore, said: “For retailers who are here for the long term, long leases give them peace of mind so they can focus on other, more crucial aspects of the business. Landlords, on the other hand, can also benefit from long leases in a challenging retail environment.”

Ms Li added that the threat from e-commerce, the proliferation of suburban malls cannibalising the Orchard and city-fringe malls, as well as low tourism spending, have resulted in higher vacancies in many malls. So, landlords are playing defensive and want to lock in quality tenants who pay rent on time, while also maintaining their occupancy rates, she said.

Ms Tan said the strategy envisages the landlord and tenants “riding the risk together”. The rent structures are designed to lower the entry barrier and help retail tenants come in at a “tolerable” low fixed-rent base. The rents are adjusted when tenants do well and enjoy high volumes of business, for example.

Apart from lower rentals, long leases come with a longer “fit out” or rent-free period to help retailers settle in. Usually, rent-free periods of between one and three months are offered to retailers under typical leases, depending on the size of the outlet. However, industry players said the window is being extended. At properties managed by OUE, for example, retailers enjoy a “fit out” period of about four to

six months, for retail spaces of between 7,000sqft and 15,000sqft.

Mr Pushpendra Sharma, founder of SpacesGenie.com — a Singapore-based online platform for the listing and booking of retail spaces — said: “Singapore has been a gold rush for retail, where landlords are decision makers given the long line of brands waiting to get in. Now, things are different and the tables have turned. So to tide over the storm, landlords are offering unique concepts, throwing in some

extras, like the rent-free period. These are still early days and as the year progresses there will be more rent cuts and rental offers.”