Retail Real Estate (Singapore)
Uptick in rents alongside healthy absorption in 4Q19. Rental growth momentum registered in 4Q19, as the property rental index for the central area, central region and fringe grew 3.4%, 2.3% and 1.0% q-o-q respectively. New malls within the central and fringe areas that launched in 2019 likely to have commanded higher rents, while a number of redevelopment projects (Liang Court, Shaw house) supported rents by shaving off some short-term supply. High occupancies largely maintained across retail S-REITs at above c.95% as at year end 2019.
Coronavirus outbreak an ongoing headwind. With stricted travel restrictions and lower demand for leisure travel globally, Singapore Tourism Board expects a 25% - 30% dip in tourist arrivals this year. As the country of origin of the coronavirus, China represents one of Singapore’s key visitor source markets, historically contributing c.20% of total visitors annually and also the largest spenders, contributing the lion’s share (c.20%) of the S$10.2bn tourism receipts (1H19). A majority of its (51%) when into shopping, followed by accommodation (17%), F&B (12%) and others (36%), and would likely cause a toll in retail sales in 1Q20.
Cap rates expanded for suburban malls underpinned by necessity spending. Cap rates for suburban retail malls expanded slightly over the past quarter, from 4.75% to 4.87%. We are of the view that suburban malls should continue to benefit from their proximity to residential areas and defensive necessity spending, as people may tend to cut back on travelling and public transport. This brings across further room for compression in the future driven by higher suburban retail rents.
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DBS Bank Ltd
12 Marina Boulevard, Marina Bay Financial Centre Tower 3
Tel. 65-6878 8888
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