Retail Real Estate (Singapore)
Bottoming out in 2019. With supply risk behind, we believe that the retail sector should improve visibility operationally. Rental rates are starting to show signs of growth, after over a year of stabilisation. While disruption from e-commerce remains an overhang on the sector, we believe that prospects are set to brighten, led by the resilient returns from its domestic-centric portfolios whereas malls that are mainly focused on fashion, particularly those along Orchard Road, might remain challenged.
Demand and supply outlook
Supply: Vacancy risks to contract further in 2019. After three years of limited supply from 2015-2017, the retail sector is experiencing a spike in completions in 2018 and 2019, mainly from three key projects: Northpoint City, Paya Lebar Quarter (“PLQ”) and Jewel Changi Airport (“Jewel”). Like previous years, the new supply will largely originate from outside of the central region as the government’s ongoing push for decentralisation of live, work and play elements continue to take shape.
Recent completions over 2018 include Century Square and Northpoint City, which are fully tenanted as of Nov’18. Over 80% and 90% of retail space at PLQ and Jewel have also been pre-committed ahead of their respective end-2018 and mid-2019 launches amid keen interest by retailers to tap opportunities in the suburban market. Funan is also set to return to the market in 2Q19 after a three-year hiatus and has secured >70% of leases for its mall component to date. Going into 2019, we see the bottoming out of the retail sector and upside to rents as vacancy risks continue to contract, given the limited new supply and high pre-leasing activity.
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Derek TAN Weixiang
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DBS Bank Ltd
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