Singaporeans aren’t spending like they used to, at least not in shopping malls. There are too many already and more are being built. But investors still have good reasons to back mall owners.
The city-state has 6.1 million square metres of retail space, of which 8.7 per cent is vacant. Yet companies are forecast to add a further 364,000 sq m, with the biggest chunk hitting the market this year. This is when online shopping is catching on, retailers such as Crabtree and Evelyn are closing physical stores, and rents are scraping the bottom.
Two years ago, the median tenant was shelling out S$9.76 per sq m in the main shopping district of Orchard Road, when the going rate for category 1 offices was S$8.65. Now, office rentals have zoomed to S$10.18 – 30 Singapore cents more than top-grade retail space – while prospects for a spending recovery aren’t great. CapitaLand Mall Trust, the island’s biggest shopping mall landlord, classifies its tenants in 17 categories, out of which 11 – including supermarkets and department stores – saw sales fall for the first quarter from a year earlier. Telecommunications, home furnishings and music and video led with big double-digit declines.
Paradoxically, real-estate investment trusts (Reits) that own malls are outperforming the benchmark Straits Times Index. Interest rates may be a part of the story. With global rates expected to stay lower for longer, a 5 per cent dividend yield on CapitaLand Mall’s shares implies a near 3 percentage point spread on 10-year Singapore government bond yields.