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NTUC Fairprice: Building the grocery store of the future
(Photo: FairPrice.com.sg)
What does the future of supermarkets look like in Singapore, and how will it change how you shop?
If you’ve ever wondered how the future of grocery might look, NTUC FairPrice is now giving you a glimpse into that space, and allowing the public to experience its new concepts for both online and offline shopping.
Talking with Singapore Business Review in a recent podcast, head of digital business at NTUC Johnny Wong explained some of the innovations that Singapore’s biggest online grocery platform FairPrice was soon to reveal.
Wong said the last 12 months have been challenging. When Dorscon orange was implemented, the demand for online groceries exploded. FairPrice saw as much as five times the normal peak demand.
But they rallied by relying on their in-house team. The fact that they handle their own logistics helped as well as their many networks of brick and mortar stores.
Once they found their footing, Wong said their online capacity grew as much as four to five times. Online grocery penetration went up to 15% from a previous 7%.
This challenge as well as the surge in demand for online groceries actually helped birth the new concept for the future models of online and offline groceries.
The grocery store of the future
FairPrice operates on three different models for its online grocery platform. They have the central warehouse model, an automated warehouse system that services near and far customers. Then there are the FairPrice supermarkets and hypermarkets across Singapore that make hyperlocal deliveries within a three-kilometer radius for faster grocery deliveries.
“Because there are so many eyes in that hypermarket with a large supermarket, looking at the fresh produce and making sure that those fresh produce is as fresh as can be, then you can have a guarantee that vegetables and fruits like it come to you are really good,” Wong added.
In fact, 60% of orders have fresh produce on them.
But what they’ve recently started doing is creating what Wong calls “dark stores”. This is a brick and mortar store that FairPrice purposely closed to the public, to cater exclusively to online deliveries. However, these ‘dark stores’ may still be a long way from full automation.
“Today, there’s a lot of manual picking in the store because we just took an existing store with a fixed layout. But certainly, if we were to do a ‘dark store’ from scratch, we would be looking at a level of automation. This automation that we probably have to insert over time because we, as a social enterprise, want to keep prices affordable, as much as possible to a Singapore consumer,” Wong said
Still these ‘dark stores’ have been doing well and Wong added they were planning to open more in the future.
FairPrice didn’t just stop with its online platforms. They started experimenting recently with an upgraded in-store concept called “Scan-and-Go”, in what Wong describes as FairPrice’s many different initiatives to digitise the instore experience.
In stores that offer the “Scan-andGo” feature, customers are able to pick their products, use their phones to scan and pay for the items, and then simply walk out with their purchases. There are no long queues, no waiting time, and almost no contact whatsoever.
The system also uses A.I. with machine learning algorithms to determine trust scores.
FairPrice plans to use these data to better understand customer preferences and to personalise the in-store experience.
“Even beyond personalisation, we’re looking at doing some interesting things for both an in store experience, and also the online grocery experience. Stay tuned a little bit,” Wong said.
Starting a ‘dark store’ from scratch would need a level of automation that we have to insert over time to keep prices affordable
Office rents to recover on the back of accelerated vaccine rollout
It showed hopeful signs when prime offices occupancy rate increased for the first time since the pandemic to 94.3% in Q2, Knight Frank says.
After several circuit breakers that took place in the second quarter (Q2) of 2021, it does not come as a surprise that the commercial property market remained weak.
PropertyGuru’s director of special projects, Winston Lee, said that the retail segment continues to be under pressure with travel restrictions and social distancing measures impacting shopper traffic.
Sales have dropped between 30% to 70% for some retailers since the pandemic. Meanwhile, the Urban Retail Development (URA) recorded slips in prices and rentals in the retail space. However, on the back of the government’s vaccine rollout, the rising tech industry and pending economic recovery, analysts still see a silver lining for commercial real estate property’s recovery.
Office
CBD grade A rents continue to have weak but positive demand for Q2 2021. In Cushman & Wakefield’s Office Q2 2021 marketbeat report, CBD grade A rents returned to growth at 0.5% quarter-on-quarter (QoQ), reaching $9.60 per square foot (sf) per month in Q2 2021 after five consecutive quarters of decline.
“Net demand was positive at 17,000sf in Q2 2021 and 51,000sf in the first quarter (Q1) of 2021. Nonetheless, vacancy rates for CBD grade A continued to climb to 4.6% in Q2 2021, up 0.4 percentage points (pp) from Q1 2021 as net supply grew faster than net demand,” the report said. Cushman & Wakefield pointed out the key drivers of net supply growth being the completion of Afro Asia i-Mark and the addition of Lazada One to C&W’s grade A basket. Meanwhile, outside CBD, rents in Suburban (all grades) rose by 0.2% QoQ amidst lower vacancy rates; whereas City Fringe (all grades) rents fell by 0.5% QoQ, dragged lower by non-grade A buildings. Knight Frank agreed that rents showed hopeful signs of bottoming as soon as the occupancy rate for prime offices in the precinct increased for the first time since the start of the COVID-19 pandemic, growing 0.1 pp QoQ to reach 94.3% in Q2 2021.
“Even though business sentiment improved with the recovering economy, pretermination space remained fairly stable in Q2 2021 with over 360,000 sf available compared to the 344,000-sf estimate in Q1 2021. This increase in shadow space was largely a result of right-sizing due to the adoption of rotational work-from-home protocols, more so than businesses and companies downsizing,” Knight Frank said.
“For similar reasons, banks and financial institutions also trimmed their office footprints. This has freed up space in prime buildings that were typically full, hence fueling “flight-toquality” moves that characterise the current market activity. As a result, both shadow space and space given up at natural lease expiry in prime buildings should be absorbed,” Knight Frank added. Cushman & Wakefield even predicted that office net demand will be six times that of 2020 levels.
Knight Frank Singapore’s head of research, Leonard Tay, however had a more modest prediction. The Information and Communications sector is expected to add more jobs over the next three years and the government’s expediting its vaccination rollout will eventually lead to economic recovery and boost the office market, as well.
Retail
The threat of a resurgence of COVID-19 cases still looms over the horizon for the retail property segment. Cushman & Wakefield’s data showed that an economic turnaround of 1.3% was registered in Q1 2021, with Singapore on track to achieve 4% to 6% gross domestic product (GDP) growth in 2021.
At the same time, the retail market
How did the several rounds of circuit breakers affect the commercial property market?
Leonard Tay
Tricia Song
had also been expected to recover with retail sales growing 7.6% for the first five months of 2021.
However, sales for all segments remained below pre-pandemic levels, except for supermarkets and hypermarkets, furniture and household equipment, recreational goods, and computer and telecommunications equipment. Although retail sales are likely to account for a full-year expansion in 2021, due to the low base last year, safe management measures under Phase 2 (Heightened Alert) are expected to hamper the pace of recovery. Islandwide, retail rents fell by 1.8% QoQ in Q2 2021 due to steeper rental dips of 3.1% QoQ and 2% QoQ in other city areas and Orchard. Meanwhile, suburban rents fell moderately by 0.8% QoQ, with the dine-in ban in Phase 2 Heightened Alert and occupancy limits. Overall suburban vacancy rates remain very healthy, at 6.7% in Q1 2021, the lowest since Q2 2016. On the other hand, vacancy rates in other city areas and Orchard are notably higher, at 11.4% and 11.6%, respectively, in Q1 2021.
“Amidst challenging business conditions, there has been a spate of store closures within these two submarkets. For example, the lifestyle retailer, Muji, closed its Marina Square outlet and the US fashion brand, Abercrombie & Fitch, closed its only outlet in Singapore. Amidst border restrictions and ongoing safety management measures, a further drop in retail rents is projected for 2021. Nonetheless, prime retail rents will be supported by a limited new retail supply and strong demand for prime spaces in top tier malls,” Cushman & Wakefield’s report said.
Industry closures
According to Tricia Song, head of Research of CBRE Southeast Asia, a drop in sales from department stores, jewellery stores, and apparel may have also affected retail property; but the food and beverage (F&B) segment were able to quickly adjust to delivery and takeout.
“Despite the uncertainty, new openings and expansions were observed in the F&B, sporting goods and fashion segment. That said, for certain segments, the number of closures outweighed openings, with fashion, F&B and entertainment segments having the highest number of casualties,” Song added.
Industrial
The manufacturing sector continued to be the main GDP driver, expanding by 10.7% year-onyear (YoY) in Q1 2021. According to data released by the Economic Development Board, manufacturing growth between January and May 2021 has been led by output expansions in three key sub-sectors: electronics that soared 22.9% YoY, precision engineering that rose 22.7% YoY, and chemicals that increased 10.3% YoY.
The Purchasing Managers’ Index stayed in expansion territory at 50.8 points in June 2021, even as community infection cases resurged and pandemic measures tightened in the region.
Based on Cushman & Wakefield’s report on the industrial segment, city fringe business park rents registered the highest growth of 2.3% QoQ in Q2 2021, as vacancy rates continue to fall to 7.8% in Q2 2021 compared to 9.9% in the preceding quarter.
The report observed that bluechip corporations have been drawn to city fringe business parks due to the robust infrastructure and favourable locality to reach talents and users. Coupled with firms in CBD decentralising more backend functions such as research and development, the city fringe business park segment is expected to achieve the highest growth rate in 2021.
“The segment’s sanguine outlook is also backed by strong investment sales such as Ascendas Reit acquiring the remaining 75% stake in Galaxis for $534m. Science Park, high tech, prime logistics and warehousing spaces also outperformed in tandem with the K-shaped economic recovery, registering a QoQ rental growth of 0.6%, 0.2%, 1.6%, and 0.9%, respectively,” the report said. CBRE agreed with this assessment, saying that on the back of healthy demand factory rents tracked the real estate services firm registered its first quarter of increase by 0.7% QoQ in Q2 2021; however, space availability for the warehouse and prime logistics remained tight, hence rents for both segments began to materialise at a quicker pace, by 1.3% QoQ and 2.9% QoQ, respectively.
A new trend
The concept of ‘live, work, and play in the city’ is slowly gaining traction in Singapore. “There is an increasing trend of old commercial buildings in the Central Business District (CBD) being repurposed to residential properties to bring about the concept of ‘live, work, and play in the city’,” PropertyGuru’s Winston Lee said. How this trend will affect the property market for both commercial and residential, however, is still unknown.
There is an increasing trend of old commercial buildings in CBD being repurposed to residential properties to bring about the concept of ‘live, work, and play in the city’
GRADE A CBD RENT & VACANCY RATE
INDUSTRY: REITS Emerging markets lead REIT in Asia Pacific: APREA
Real estate investment trust (REITs) in the AsiaPacific is projected to grow in both emerging and developed markets. As more investors grow to become acquainted with REITs, a number of new REIT classes have opened up, a promising move for REITs to improve in the coming years.
The majority of the REIT listings seen this year and over the past year have taken place in the emerging markets of India, Philippines, Thailand, said APREA CEO Sigrid Zialcita. This is in addition to China having announced that they have approved their pilot REIT regime.
“What we’ve seen in China is that they have actually been inducing a lot of the players to submit their assets for a REIT listing. In May 2021, the China Securities Regulatory Commission or CSRC, approved the registration of nine REITs, and this will essentially channel investors’ money into projects,” she said.
Zialcita said that in China, the focus of the REITs is on infrastructure projects. However, they are also seeing positive developments in fast growing markets.
APREA anticipates that the next phase of growth, when it comes to the asset class, is that it will be driven by the expansion and adoption of the REIT framework in the region’s fast-growing markets – not only this year, but also into the decade.
“In the developed markets, there is also continued expansion of the REIT sector in some of places such as Hong Kong. We worked with the Securities and Futures Commission to go through the REIT code that they have and made some enhancements. There are a few companies that have lined up plans for a REIT listing in Hong Kong,” she said.
“Compared to Singapore, Japan, and Australia, there are only a few sectors in Hong Kong to get into REITs,” she added.
In emerging markets such as the Philippines, interest in REITs have picked up pace among top developers the past year.
In the February 2021 GPR APREA Indices, it was reported that the Philippines is set to become the REIT IPO hotspot in the Asia-Pacific region this year. Led by the debut of Ayala Land REIT, upcoming property listings include SM Prime, Robinsons Land, and Megaworld Corporation.
“A change in regulations in the Philippines has necessitated or fast-tracked the implementation of the REIT framework leading it to become a listing hotspot. By having this REIT vehicle, developers can free up some of the investments locked in assets and recycle the capital into something else,” she said.
Mainly led by the office sector, interest in REITs in the Philippines is being stabilized by one of its largest occupiers of commercial space: the business process outsourcing (BPO) sector.
“Looking at the Philippines today, the BPO sector remains the primary support or pillar of economic activity. If we look at companies that have sponsored REITs and those planning to put their assets into REITs, these are on the office side. The Philippines is lucky and fortunate to have many of these players own these assets that allow the BPO sector to thrive in the country,” she added.
A call to invest in REITs
In terms of having to educate players about REITs and having it as an investment option, Zialcita said that there is still a lack of information in terms of how REITs are performing.
Investors tend to invest directly into real estate, but only those deeply interested in the industry can tell the difference between this and REITs.
“They like to invest directly into real estate. Whenever I explain to our members, some become interested in this
APREA CEO Sigrid Zialcita
In the Philippines, the BPO sector remains the primary support or pillar of economic activity, which fast-tracked the implementation of REIT
If people are waiting for prices to crash, it is not likely to happen
industry. We look at the prices versus what you can invest in REITs. In Asia Pacific, all the office, residential, and some other assets’ prices held even during COVID time,” she said.
“If people are waiting for prices to crash, don’t hold your breath – this is not likely to happen. This is where REITs come in. REITs are an attractive proposition, because by buying REITs, essentially, you will have a slice of the real estate although it is indirect. Even in COVID times, returns on REITs remains to be attractive,” she added.
Zialcita said that the market cap for REITs is still increasing. Now, it is set at over US$300b but this is being skewed by Japan. Compared to the US’ one trillion-dollar REIT market, the APAC region’s REIT performance is steady and shows promising returns in the coming years.
“The breakdown of the market cap is a sizable one with Japan being the largest REIT market, followed by Australia and Singapore. There is also Hong Kong, with the rest spread across the emerging markets. In terms of liquidity, this is where I believe there’s still room to grow,” she said.
“We’re just seeing the tip of the iceberg. When REITs started in this part of the world, it was a very low number and compared to now where it has since skyrocketed. We reckon that once China is able to include real estate in its REIT regime, the potential will be immense. Some of the fast-growing locations, even the Philippines, have the ability to hit over a trillion in no time,” she added.
APREA’s Rebranding
The organization found the right time for APREA to rebrand through bringing new members, new partnerships, and pushing into growth markets as well as new sectors across Asia Pacific.
APREA was founded in 2005, marking 2021 as its 16th year in existence. Zialcita said that they started with a vision to create an organization where real estate leaders and influencers across Asia can get together to network and discuss some of the relevant matters that are happening within the industry.
Zialcita said that among the changes introduced there will be more focus on other markets to serve as growth areas for the organization.
To add, their new logo is now multi-colored, to clearly represent APREA’s values: the red stands for connections, blue for transparency, green for sustainability, and amber for diversity.
“This year, we also created something different, which is the ‘other markets’ chapter. This serves as an incubator for new chapters in the future and is essentially a growth plan for us. We are doing this through our four service fillers, including advocacy, education and research, professional development and advancement, and our company’s investor outreach program,” she said.
“Our membership consists of investors-- these are your REITs, asset managers, pension funds, sovereign wealth funds, family offices, and all the other institutional investors. There really can be many kinds of asset classes today,” she added.
Today, the organization has evolved into something bigger and more comprehensive, supporting the changing real estate and infrastructure sector.
“The terminology that we use today is ‘real assets,’” Zialcita said, referring to their rebranding to focus on the various sectors they now study and cater to. “We now have a presence in several strategic regions across Asia Pacific, and this include Australia, China, Hong Kong, India, Japan, and of course, in Singapore where we are headquartered.”
“The dominant form of real estate property investment has always been the office. Today, we’ve seen a number of our members venture into infrastructure. We consider this a natural progression like what we have done in the past,” she concluded.
The dominant form of property investment is the office
