Retail property sector in Singapore battles an online shopping exodus

Singapore’s malls are showing some resilience to the global hollowing out of physical retail by online shopping. The demographics of the smartphone generation are still against them, though.
Suburban middle-class shopping centers put up a strong show in CapitaLand Mall Trust’s quarterly earnings. Their relative outperformance was an overarching theme in the results of Singapore’s biggest mall landlord, which offer a useful three-monthly check on the retail pulse and shifting consumption patterns in the city-state.
CapitaLand Mall’s tenants saw sales slid 0.9 percent from a year earlier in the first half, extending a 0.4 percent decline in the January-March quarter. Yet real estate investment trust managed a respectable 4 percent-plus inc-rease in rents on about 150,000 square feet of roughly 800,000 square feet of retail space where new leases were signed or old ones renewed in the first six months. On one block of 40,000 square feet, the REIT negotiated a 5.6 percent jump.
What’s remarkable is that the malls where rents rose the most are out on the island’s more industrial western side: Lot One Shoppers’ Mall, IMM Building and Westgate. The landlord’s better-known properties in
Singapore’s mainstay shopping and dining districts — Orchard Road, Clarke Quay and Bugis — couldn’t even eke out a 1 percent increase over rents agreed in previous leases, typically signed three years ago. Rents even fell at Raffles City, an iconic brand that Singapore has exported to Chongqing in China.
So while retail attractions frequented by Singapore’s well-heeled, tourists and business visitors are languishing, those that cater largely to public housing estates are holding up well.
For how long, though? The US-China trade war is taking a toll on the city’s small, open economy, with GDP shrinking an annualised 3.4 percent in the second quarter from the previous three months, the steepest decline since 2012. Isetan Singapore Ltd., a Japanese department store operator, has said it won’t be renewing the lease on its money-losing Westgate store this December.
IMM Building is a one-stop heaven of discount outlets. But Generation Z-ers — those born after 2000 — may find it tedious to traipse out to remote shopping centers for a pair of Calvin Klein jeans when better prices are available online.
What does all this mean for landlords? Interest rates that look likely to stay lower for longer are a bulwark. The 4.5 percent dividend distribution by CapitaLand Mall provides 250 basis points more than 10-year Singapore government bonds — enough to attract yield-hungry investors. While the REIT’s revenue on a comparable basis improved by just 1.2 percent in the first half from a year earlier, it souped up profit by compressing operating expenses by 1 percent. Looking forward, investors will expect returns from Funan Mall, a once-popular haunt for gadget buyers in the city center that recently reopened after a three-year makeover.

—Bloomberg