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Singapore real estate investment trusts (S-REITs) with retail properties are expected to face challenging times ahead due to a myriad of problems, reported Channel NewsAsia.
These include the ongoing labour crunch, weaker tourist arrivals, consolidation among tenants, uncertain demand stemming from slower GDP growth and the anticipated interest rate hike by the U.S. Federal Reserve. Another issue is the intensifying competition from online commerce.
As such, experts have lowered their DPU projections for retail REITs. For the near term, they also expect a moderation in rental reversions, or rent adjustments as shaped by market forces.
In an interview, OCBC Bank said prime retail rents in Orchard Road could fall by up to 5 percent. That in the suburb would likely hold firm as these are less dependent on tourist dollars, but there is a downside risk.
“Like what we have seen in the Q2 2015 results, the performance of Frasers Centrepoint Trust as well as some of the suburban malls trust have actually been on the increase on a year-on-year basis. But some of the malls within the Orchard space, they have actually registered declines, in both shopper traffic as well as tenant sales,” said Mr Andy Wong, investment analyst at OCBC Investment Research.
Moreover, the stock prices of retail REITs have languished last month, but the significant decline in share prices could boost dividend yields for investors.
“A lot of the REITs’ share prices have seen some softening in the last four to five weeks. We expect the yields, the dividend yields to actually see an uptick by as much as 10 percent compared to what it was providing in the last three to four months,” said Chesterton Singapore’s Managing Director Donald Han.
“We expect probably moving forward, dividend yields could see north of 5.5 percent, to as much as 6 percent for retail REITs that are focused very much on the Singapore market.”
However, the overall occupancy level in Singapore’s retail scene is predicted to dip from about 93 currently to around 90 percent and this could drag down the profit of retail REITs, added Chesterton.
Nikki De Guzman, Editor at CommercialGuru, edited this story. To contact her about this or other stories email nikki@propertyguru.com.sg
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