The econometric analysis of retail rents in Singapore
| DOI | https://doi.org/10.1108/JPIF-05-2016-0031 |
| Pages | 620-640 |
| Published date | 05 September 2016 |
| Date | 05 September 2016 |
| Author | Kim Hin David Ho,Mun Wai Ivan Ho,Mei Ling Christina Quek |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
The econometric analysis of
retail rents in Singapore
Kim Hin David Ho
School of Design and Environment,
National University of Singapore, Singapore
Mun Wai Ivan Ho
Republic Polytechnic, Singapore, and
Mei Ling Christina Quek
School of Design and Environment,
National University of Singapore, Singapore
Abstract
Purpose –Primarily based on Alonso’s bid-rent model, the purpose of this paper is to examine the
dynamics of the Singapore’s overall retail rental market by adopting a vector error correction model
(VECM) estimation.
Design/methodology/approach –This paper uses the proxy for the overall retail rental value,
which is indicated by a combination of the shop rent index from 2004 to 2013 and the retail rent index
(RRI) in 2014, maintained by the Urban Redevelopment Authority (URA). The independent factors are
the real gross domestic product (GDP), monthly earnings of individuals and vacancy rates (VR).
Findings –Such a behavioral model examines the dynamic structures that overshoot and/or diverge
from equilibrium.
Research limitations/implications –The variables LOGGDP and VR are co-integrated of order
one, I(1), while variables LOGME and LOGSRI are co-integrated of order two, I(2), to enable them to be
employed in the VECM model.
Practical implications –The VECM model shows a good fit that allows the error correction term
(ecm) together with the economic, financial and rental variables to jointly explain about 79.2 percent of
the variation in the overall RRI. With a positive CoinEq1 coefficient that is positive and statistically
significant at 5 percent level, it would take a long time for the system to return to its equilibrium once it
has been shocked. Another variable that shows significant explanatory relationships includes past
rents (index points) in the second order lags [D(LOGSRI(−2))]. The variable [D(LOGGDP(−3))], with a
significant t-statistic value at 2.916, also helps to explain the changes in the overall rents.
Social implications –This paper highlights the importance of the first and third differences of the
lagged macroeconomic variables of the monthly earnings of individuals is moderately significant. The
VR in the first and second differences is significant in accounting for the variation in changes of overall
retail rents with their t-statistics values being above 3.0. It is thus meaningful for policy makers to so
enhance their in-depth understanding.
Originality/value –This paper fulfills an identified need to study how the results from the ex post
forecasting estimates from the VECM for overall retail rents in Singapore can be enabled.
Keywords Co-integration, Equilibrium, Rental dynamics, Retail rental market, Singapore,
Vector error correction model
Paper type Research paper
Introduction
As a global metropolitan city, Singapore’s retail sector serves as a vital economic pillar,
with the capacity to generate over $32 billion in operating receipts in 2012. This sector
plays an important role not only for the needs of the domestic market but is also
intricately connected to the tourism industry, providing an avenue that draws 27 percent
of every tourist dollar spent. Although previous studies have provided meaningful
Journal of Property Investment &
Finance
Vol. 34 No. 6, 2016
pp. 620-640
©Emerald Group Publishing Limited
1463-578X
DOI 10.1108/JPIF-05-2016-0031
Received 18 May 2016
Accepted 21 May 2016
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1463-578X.htm
620
JPIF
34,6
insights into the domestic retail sector’s outlook, the data collected, the analysis of the
performance and the forecast of Singapore’s retail sector remain outdated and under
researched. This is particularly so in the area of rental determination for shopping
centers in the suburbanarea. Little has been done to examine the impact of demand and
supply factors on retail rents in such a heartland area.
Comprising about 21,300 establishments as of 2012, the main activities of the retail
trade comprise general merchandise, transport equipment, personal goods, household
equipment and other retail trade. Given the rapidand sustainable progress of Singapore
to transform itselfinto a global city, the retail landscapehas also experienced significant
transformation. The growing affluence of Singapore’s domestic market and the rising
purchasing power of tourists from Asia, coupled with the government’s concerted
planning efforts for Singapore, have resulted in a retail sector that has become highly
competitive and concentrated in recent years. Singapore’s land use planning and
conservation authority, the Urban Redevelopment Authority (URA), has envisioned the
development of planned shopping centers in both the prime central districts and the
suburban public housing new towns. As of the first quarter of 2014, Singapore is
reported to have an island-wide retail stock of 61.5 million sq. ft. This retail space
comprises a majority of 68.7 percent of the existing supply in the central region (which
takes into account the Orchard Planning Area, the Downtown Core Planning Area, the
rest of central area, and the fringe of central region), while the remaining 31.3 percent is
located outside the central region.
The retail central area (RCA) comprises the following nine key planning areas:
Outram, Museum, Newton, River Valley, Singapore River, Marina South, Marina East,
Straits View and Rochor. It excludes the Orchard and Downtown Core Planning Areas.
The outsideof the central area refers to the fringearea (part of the central region),the east
region, northeast region, north region, and the west region. Typically, each of five key
planning regions of Singapore is served by at least one large suburban shopping mall.
Nevertheless, such elaborate and detailed planning in segregating the retail sector
into different regions with the aim of decentralizing retail activity has resulted in large
variations in the rents of retail accommodation. The primary shopping area refers to
the Orchard Road corridor, which consists of the whole shopping belt from the junction
of Tanglin Road/Grange Road to Orchard Road, including some parts of Scotts Road,
all the way up to the Dhoby Ghaut mass rapid transit (MRT) station. This area contains
the highest density of retail space on the island and is the prime location for the retail
market in Singapore. Not only is the Orchard corridor a shopping haven for the
domestic market, it also serves to attract the tourist market. This can be seen from
the mix of major retail centers in the area, comprising mainly international retail chains,
the boutiques that carry designer labels and the department stores that carry a wide
range of retail goods and services. Some of the more prominent malls in this area are
the Ion Orchard, Paragon and the Ngee Ann City. The Orchard Road corridor also
plays host to newer malls like 313 Somerset and Orchard Gateway. Among them, the
Ion Orchard retail center stands as the largest development with a net lettable area of
over 660,000 sq. ft of retail space. According to the URA, the secondary shopping area
refers to the area outside the primary shopping area but within the central area of
Singapore. This can be subdivided into seven main areas, namely, Chinatown, High
Street/City Hall, the Downtown Business District, the Jalan Sultan/Serangoon area,
Marina Bay/North Bridge Road district, the Singapore River and the Bugis area. Rental
value differs widely owing to the establishment of different forms of retail
developments in such highly popular areas.
621
Retail rents in
Singapore
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