By UMA SHANKARI

(SINGAPORE) Rents at suburban malls in Singapore are fast catching up with those for prime Orchard Road retail space as neighbourhood malls draw increasing shopper numbers and more interest from tenants.

The difference between prime Orchard Road rents and suburban rents narrowed to just 9 per cent in Q2 2010 - from as much as 24 per cent at the start of 2009 and 21 per cent in Q1 2005 - according to CB Richard Ellis (CBRE).

In fact, upper-storey space at these suburban malls is already more expensive than upper-storey space in the Orchard Road and Scotts Road area, according to data from DTZ.

The rental gap tightened as Orchard Road rents fell for the seventh consecutive quarter while suburban rents continued to edge up in the second quarter of 2010, CBRE's data shows.

Prime Orchard Road rents fell to $31.10 per square foot per month(psf pm), reflecting a 3.4 per cent decrease from $32.20 psf pm in Q12010.

Suburban malls, on the other hand, saw a 1.4 per cent quarter-on-quarter increase in prime rentals to $28.50 psf pm.

And when it comes to retail space on the upper floors, suburban malls are in fact fetching more than their Orchard Road and Scotts Road counterparts.

According to DTZ, upper-storey rents at suburban malls inched up 0.4per cent quarter-on-quarter to $22.90 psf pm in Q2 2010, whileupper-storey rents in the Orchard Road/Scotts Road area stayed flat at$20.50 psf pm.

Analysts said that rents in the Orchard Road area are depressed after a large amount of new supply - from malls such as Ion Orchard,313@somerset and Orchard Central - came on stream over the past year.

'Competition in the Orchard Road and Scotts Road and other city areas has intensified and the increased range of retail choices has rendered consumers to be more selective in their purchases,' said AnnaLee, DTZ's associate director for retail.

'Retailers, particularly in the newer malls, are adjusting to the vagaries of consumer preferences and resulting in early termination of leases in some cases,' she added.

In contrast, rents in the suburban areas continued to edge up in the second quarter of 2010. Suburban malls, with their built-in catchmentof shoppers and mass market offerings, largely performed better than malls in the city during the financial crisis.

These malls, which draw more and more shoppers every year, are now able to command higher rents from tenants.

'Generally, 2009 shopper traffic at our suburban malls is higher than that in 2008,' said a spokesman for CapitaMall Trust (CMT). CMT has eight suburban malls in its portfolio.

Frasers Centrepoint Trust (FCT), which owns four suburban malls,also said that footfall across its portfolio rose 6 per cent from the2008 financial year (October 2007 to September 2008) to the 2009financial year (October 2008 to September 2009). The figures exclude Anchorpoint, where traffic counters were removed for asset enhancement works.

The increased visitor numbers have translated into higher rents for both retail trusts.

FCT said that in the first six months of its 2010 financial year(October 2009 to March 2010), its portfolio achieved average rentalreversions of 4.5 per cent. And for the suburban malls in CMT'sportfolio, the rate of average rental growth per year ranged from 1.1per cent to 2.3 per cent in Q1 2010.

Developers are extremely bullish on the potential of suburban retail space here.

Australian developer Lend Lease, which paid $749 million for a mixed-use land parcel in the Jurong Lake district, intends to build a suburban shopping mall on most of the site.

Lend Lease, which owns the 313@somerset and Parkway Parade shopping malls here, is required to set aside a mandatory 30 per cent of thegross floor area for office use. But the remaining 70 per cent will beused solely for retail space, said Ooi Eng Peng, executive officer forretail and investment management in Asia for Lend Lease.

'The mall will be the Parkway Parade of the west,' Mr Ooi said.Suburban malls offer good prospects for developers who can come up with the right tenant and product mix for the surrounding catchment population, he added.

Looking ahead, the gap between prime Orchard Road rents and prime suburban rents will narrow even more over the rest of this year asOrchard Road rents dip further.

'We expect prime Orchard Road rents to dip 5 per cent to 10 per centin 2010 due to the settling of business and trading patterns,' saidLetty Lee, CBRE's director for retail services. 'But prime suburban rents are likely to see a 3-5 per cent upside in the same period,underpinned by catchment demand.'

But it is not all doom and gloom for malls on Singapore's best-known street; analysts expect that over the next two to three years, rents in the Orchard Road will rebound.

This article was first published in The Business Times.