It has been five weeks since the country was under Phase 2 Heightened Alert.
Drawing from the experience of last year’s circuit breaker, we have established a routine at home. The kids are thrilled to be on home-based learning. Growing children are always hungry. With no dining out, every day I will prepare home-cooked meals for lunch and dinner. In between, we make some healthy snacks together. Coupled with workouts every morning and evening, I am on target to be back in my best shape like during the circuit breaker.
Retail scene under Phase 2 Heightened Alert
On a weekday, I decided to give the kids a surprise with a takeaway lunch from a shopping mall 20 minutes’ drive away. Lately, many malls offered 30-minute or 1st-hour free parking for the convenience of takeaway and food delivery service.
Most of the shops were still opened. In the middle of Great Singapore Sale (June 6 to July 7), there was hardly any customer inside the shops. Workers from shops and offices who couldn’t work from home were seen packing lunch. Many queued in front of food stalls selling meals for under ten dollars.
Restaurants were offering at least 10 percent off for takeaways because 10 percent service charge was waived anyway. Some even gave 20 or 30 percent discount for their à la carte food items. Many came up with attractively priced bento sets and special meals for two to four persons.
After a short stroll on the ground floor, I was spoiled for choice. I decided to buy from a franchise restaurant we visited regularly. I remembered joining the long queue in front of this restaurant during last June’s school holiday. But this time there was no customer in sight – not even one for takeaway or delivery.
I picked a special bento set and some à la carte dishes at 20 percent discount. Noticing there was finally a customer there, the chef came out from the back kitchen. He stood next to the waitress taking my order, eager to find out what he had to prepare.
I bought some desserts from a nearby eatery because of their attractive 30 percent discount. Then grabbed two pieces of home wear at such a reduced price that I would regret not buying.
When I went back to the restaurant to collect my takeaway, there was no delivery or takeaway order in the pick-up trays other than mine.
Inflation, deflation or reflation?
The restaurants and retailers are trying to make whatever they can to lower their loss during this period. They are all losing money even after collecting rental rebates and cutting staff to a minimum.
The travel and hospitality industries are worse. Last month, I went for a staycation at my favorite hotel. Their special price was unthinkable during normal days, on top of all the additional perks minus the tourist crowd.
Who said there is inflation? Everything is so affordable now if you don’t follow the herd to buy properties.
Of course, it is a different story if you are holding the devaluing US dollars. Whenever a country prints money like nobody’s business, the citizens suffer. And if you are residing in the US, you have no choice but to buy everything imported at higher costs under US-China trade war.
Instead of inflation, everywhere we have reflation – abnormal growth due to generous relief packages thrown by the governments to stimulate the weak economy and avoid recession.
However, with an unexpected extended pandemic, countries begin to realize that they cannot continue to splash their reserves and taxpayers’ money. The solutions are printing more money, issuing bonds, raising taxes, etc.
As ordinary citizens, we pray for the Singapore government not to increase GST or individual income tax. Large banks and developers are in better positions than small potatoes like us to replenish the declining reserves. So it is a relief to see the government slowly releasing private residential land sites for sale. Though 2,000 units for second half of this year is a far cry from 7,000 to 8,000 units in the same period in 2010 and 2012. It also look like peanuts when compared with the peak in 2017.
Our malls are not built for food delivery
I had to go up two levels to be back to the carpark. But the escalator could only reach one level. Another escalator going up to the next level was not in operation due to social distancing. This was despite low human traffic at this hour on a weekday.
The social distancing officer told me to use the lifts on the other end of the mall. I found that only one out of the four lifts could go up to the carpark. After reaching the right level, it was another long walk to the carpark.
Carrying heavy bags of takeaways to move around, the intensity of the whole takeaway exercise was almost comparable to my workout in the morning. I pity the food deliverymen who do this many rounds a day. They also need to be fast in order not to exceed the grace period of free parking.
That reminds me of Mr Ku Swee Yong’s recent podcast “Future of Retail, Commercial, Industrial and Residential Real Estate”. He mentioned that retail malls need to think about how to redesign and renovate to support food delivery services. The layout must be convenient not just for unloading of goods by existing tenants, but for pickup from food delivery motorcyclists.
One rainy Saturday afternoon in mid-April, there was a big jam in the carpark of JEM. Long queues of cars in both carpark levels came to a standstill. Impatient drivers, some being stuck in their car for two hours, kept sounding their horn out of frustrations. We caught the unpleasant sight and immediately retreated to the mall. A food delivery guy told us that he just parked his car for a pickup. He was very worried that he could not leave after collecting the food.
The changing Singapore retail scene
These days Orchard Road is more like a quiet neighborhood town than a busy shopping belt. Anchor tenants of big malls are disappearing one by one, including Robinsons, Abercrombie & Fitch and CIMB branch.
After closing their stores in Singapore, Robinsons announced that it will go online end of the month. The 163-year-old department store is following the footsteps of retail chains like Sa Sa and Crabtree and Evelyn. According to The Business Times, while more are working from home, budding retailers are starting their online retail business from home too.
If more and more retailers are changing their operations from physical to online presence, do we still need so much retail space in the Little Red Dot?
According to URA’s 1st Quarter 2021 real estate statistics, retail vacancy rate now stands at 8.5 percent and 11.6 percent in Orchard. It is higher than 7.9 percent in 2019 during the global financial crisis.
Now the major concern of retailers is no longer the Covid-19 reliefs from the government or rental discounts from the landlords. It is how to make enough money to pay shop rent, their staff and other costs when shoppers are absent from the malls.
We can blame Covid-19 for the difficulties faced by retail owners and landlords. But the pandemic is only an immediate cause. Covid-19 works to expose the underlying problems in Singapore’s retail industry, which struggled even before the outbreak of the pandemic. Businesses that had problems before now face even bigger problems.
Rethink of once-reliable commercial properties
Covid-19 made me rethink about those traditionally more stable investment properties, including HDB shops, shophouses, offices and student accommodations.
Compared with commercial properties, residential properties are simpler. There are published data on recent transactions to determine the valuation. It is almost a no-brainer for first-time investors to buy a unit in a big condominium for investment. Even if they bought near the peak of the market and the rental market is miserable, landlords can still lower the rent to find a tenant.
In contrast, commercial properties are not meant for amateurs. For instance, the investment value of a shop is determined by many things, including location, human traffic, shop frontage, etc. Furthermore, commercial properties loan-to-value is lower but interest rate is higher. It is because the banks assume that these properties are meant for investment instead of owner-occupation.
Because of higher risk, investment in commercial properties can only be justified by higher return. Above all, owners must have strong holding power. After they bought an HDB shop or a strata-titled retail shop, the economy can go south and the retail industry suffers. If the tenant cannot make any profit, he has no choice but to close shop. It may not be easy for landlords to find a replacement tenant. They shop can be left vacant for months or even years.
Strategically located shops in Hong Kong, especially those along busy roads in Tsim Sha Tsui, Mongkok and Causeway Bay, used to be the best property sector in both rental return and capital appreciation. You can now rent the shops at 80 to 90 percent discount compared to what past tenants used to pay. Despite the attractive rent, a third of the shops are left vacant.
Best opportunity for business expansion
Whenever there is risk, there is opportunity. Only the residential rental market outside the city area is intact. The rental performance of shops and shopping malls are the worst, followed by offices. Now is the best time to bargain with landlords to rent shops and offices in strategic locations.
At least two types of shops are expanding now: the niche new kid on the block and large retail chains that are still making money. For example, Ikea takes the opportunity to open new stores in JEM and Jurong Point. The furniture company is also making good use of the bad market to buy prime retail properties in Europe’s major cities.
From the beginning of this year, my sister in Hong Kong has relocated her private practice to a full seaview Grade A office building vacated by a financial institution. Covid-19 is the perfect time to rent a bigger office at a good price. Counselling by clinical psychologists is in high demand now. Under the prolonged pandemic, far more people have mental health issues than physical health problems. Very often, psychological problems are more difficult to solve than financial ones.
Office buildings under the few largest landlords can still afford to be firm in asking rent. Others are struggling to keep existing tenants who are rationalizing their real estate footprint. They also face strong competition from the co-working space companies.
Property agencies CBRE, JLL, Colliers and Knight Frank are expecting the Singapore office market to recover by the end of this year or next year. With the Singapore office vacancy rate standing high at 11.9 percent, did their predictions sound too optimistic? Even if 100 percent of office workers return to the office from tomorrow, where can landlords find companies to expand and occupy the existing vacant office space? And what about the 761,000 sqm GFA of office space in the supply pipeline?
If you need advice on property matters or residential properties in Singapore, you can check out my personal consultation service.
My new book Behind The Scenes of The Property Market is now available for preview and order online. You can also check out my online courses.
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