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Investors still have good reasons for backing up mall owners even as Singaporeans spend less at malls and the city-state is already crowded with shopping malls, reported Bloomberg.
Singapore now has 6.1 million sq m of retail space, 8.7 percent of which is vacant. Nonetheless, companies are expected to add another 364,000 sq m, a majority of which are set to enter the market this year. This comes as online shopping catches on, with retailers like Crabtree and Evelyn closing physical stores, while rents scrape the bottom.
Just two years ago, the median tenant was paying $9.76 per sq m in Orchard Road’s main shopping district, while the standard rate for Category 1 offices was going for $8.65 per sq m.
Today, office rentals have increased to $10.18 per sq m – up 30 Singapore cents compared to top-grade retail space – while prospects for a spending recovery remains bleak.
In fact, CapitaLand Mall Trust, Singapore’s largest shopping mall landlord, saw 11 out of its 17 tenant categories suffer falling sales in the first quarter from a year ago.
Interestingly, real estate investment trusts (Reits) which own malls are outperforming the benchmark Straits Times Index, with interest rates believed to be a contributor to this phenomenon.
With global rates forecasted to stay lower for longer, a five percent dividend yield for CapitaLand Mall’s shares would mean an almost three percentage point spread on the 10-year Singapore government bond yields.
And with Singapore being Asia’s Reit capital, almost every kind of Singapore Reit – whether hospitality, industrial, healthcare, office and residential – is anticipated to offer better dividend yield in 2020 than retail, noted Maybank Kim Eng Research.
DBS Bank analysts are also excited on Starhill Global Reit, which might be a key beneficiary when its signature Orchard Road malls are permitted to have a 29 percent increase in plot ratio.
Meanwhile, one idea in the new URA Draft Master Plan is to encourage owners of older office buildings within the central business district (CBD) to be transformed into hotels and homes.
The move is expected to result in a steadier flow of retail traffic to the CBD on weekends.
Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories, email romesh@propertyguru.com.sg
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