Singapore’s great mall makeover: Will investors reap the rewards?
While the retail outlook remains resilient, DPU growth may not keep pace with rising rentals, analysts said.
Singapore's shopping malls are undergoing a transformation as investors look to maximize returns. Orchard Road, once the country's premier shopping destination, is now being repurposed to accommodate more office spaces, while suburban malls are being extensively renovated and tenant profiles are being revamped. Malls are also introducing various activities and experiences to attract footfall and support rents, which are crucial for real estate investment trusts (REITs) that own local malls.
REIT managers interviewed by The Straits Times reported strong rental reversions, signifying that retail remains resilient despite rising costs. However, higher rental income might not equate to larger dividends, as costly refurbishments and rising borrowing costs could absorb some of the gains. Therefore, REIT managers need to strike a balance between making their malls relevant and delivering returns to unitholders.
A significant change in Singapore's retail landscape is the diminishing role of department stores as anchor tenants. Big department stores like Metro, Robinsons, John Little, and Isetan have gradually exited the market due to the e-commerce boom since the Covid-19 pandemic. However, cinema complexes, supermarkets, and large electronics retailers are still relevant anchors.
Fashionable tenants like tea brand Black Tree and frozen yogurt shop Yo-Chi have also become popular, drawing long queues. Landlords can benefit from a more diverse tenant mix, as smaller tenants may not have to endure long leases with below-market rents, according to Tan Choon Siang, CEO of CapitalLand Integrated Commercial Trust.
Metro, for instance, is exploring flexible formats, including smaller stores, multi-specialty outlets, curated shopping experiences, and pop-ups, which could potentially lead to higher rental reversions.
FCT, Singapore's only pure-play retail REIT, is currently reworking space vacated by Isetan at NEX as part of a $90 million enhancement program. The new layout will feature a lifestyle and family-focused cluster with new food and beverage offerings. FCT's CEO, Richard Ng, emphasized that the traditional department store concept is changing in response to evolving consumer demand.
He noted that malls can rethink traditional formats by breaking up larger spaces into multiple concepts, thereby enhancing space productivity and offering greater variety to shoppers. Savills, a real estate services firm, observed an increase in participation from food and beverage operators, athleisure brands, beauty concepts, and experience-led tenants.
They also highlighted that shoppers today expect malls to offer much more than just shopping, such as experiences, convenience, social interaction, dining, and wellness. FCT is positioning its malls as "second places" where visitors can spend time and connect with others. By considering each tenant's contribution to a mall's positioning and relevance, REIT managers can ensure a relevant and differentiated mix of retail, dining, and lifestyle experiences.
Written by urgent.news from Straits Times Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
