SMALL BUSINESSES PRICED OUT?
For budding retailers hoping to establish a presence in malls, the “risk-managed” approach can feel like a competitive disadvantage.
In Mr Clement Low’s seven years in the F&B industry, he has seen his fair share of turnover of neighbouring tenants.
Mr Low is the marketing and business development manager of The Whale Tea, a bubble tea brand that started as a franchise from China in 2019 but now operates independently.
The Whale Tea has nine outlets across Singapore, mostly in malls. At tenancy renewal, rent increases can range from 4 per cent to 7 per cent, which Mr Low considers reasonable. However, he has also encountered rent increments of 20 per cent to 30 per cent.
“A lot of retailers or business owners, they couldn’t continue … because it’s not doable anymore,” he said, pointing to rising operational costs, including manpower and materials.
By contrast, there are some well-established brands from China that have deeper pockets and can take more risks, he said.
“Some of them, they run the business here, they are not even making a profit yet, but they just keep dumping money just to build a brand … they just want the market share,” he said.
“We cannot afford to do that. So every single one of the shops that we open, we must make sure that it’s profitable.”
Developers stressed that rent is not always the deciding factor when picking tenants.
CapitaLand’s Mr Yeo said it is more important for them to think of the overall trade mix.
“Why does the ‘evil REIT’ have bookstores which don’t pay high rent? Because you manage the portfolio, so paradoxically, maximising the value of the property does not mean maximising the value of every single unit,” he said.
For example, having a bookstore in a mall can bring footfall during off-peak hours. The vibe and energy it creates justifies the higher rent of other tenants, which then makes up for the bookstore’s lower rent.
“That’s how we think about trade mix. Honestly, it’s very seldom who can pay the highest rent,” he said, adding that that factor is only considered when deciding between a few similar brands that fall under the same category.
“Otherwise it’ll all be gold shops, EVs, massage shops,” he said.
Mr Yeo said pulling together a good trade mix is like having a good plate of economy rice. There are the staples – supermarkets, foodcourts – but also a little something special. In a mall’s case, that means independent and niche brands.
“You need to have those staples, because if your whole mall is very niche, small tenants, it’s also difficult to survive,” he said.
A mall can have 200 to 300 tenants. “A percentage of that will definitely have to be your utilitarian ones,” he said.