Singapore's restrictions on importing foreign labor have made it tough for the city-state's retailers and food outlets to find workers, limiting expansion plans and damping retail rents.
"Almost everyone is facing labor problems," said Alan Cheong, senior director for Singapore at real-estate service provider Savills, citing feedback from the company's retail team.
The Singapore government, which has faced public opposition to the country's liberal immigration policies, has announced a slew of measures this year to limit the influx of foreign workers to ease pressures on the public transportation system and housing cost increases.
Foreigners – which make up almost 40 percent of Singapore's population of 5.4 million – are an important source of cheap employment, particularly for the country's manufacturing, construction and services sectors.
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"It's holding back the expansion plans of tenants and as a result of that, the demand for space was lacking in the third quarter. That caused rents to be a bit soft," Cheong said.
Savills noted rents for the third quarter in the prime Orchard Road shopping belt slipped 1.5 percent from the second quarter, while the vacancy rate rose to 7.7 percent from 7.3 percent a quarter earlier. The company attributes the developments to the foreign labor restrictions stymieing retailers' expansion plans.
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Aside from the higher vacancy rate, Singapore's supply of retail space is also rising, with two new malls set to open in Orchard Road area before the year wraps up.
"It should have been relatively easy to fill up the space," Cheong said. "[But] if you don't have the labor, you have trouble justifying how to take up the space."
The decline in rents isn't helping businesses much. "Rents are falling, but labor costs are rising," he said, adding that businesses haven't been able to pass costs to the consumer amid somewhat anemic retail sales. "Retail margins are still being continually squeezed."