Singapore retail Reits: New supply of space bigger threat than online shopping, says Moody's

A shopping hub within South-east Asia, Singapore carries a large variety of products that might not be readily available and remains a tourist destination for shopping and entertainment.
A shopping hub within South-east Asia, Singapore carries a large variety of products that might not be readily available and remains a tourist destination for shopping and entertainment. PHOTO: ST FILE

SINGAPORE - A heightened supply of retail space will pose a bigger threat to Singapore's retail Reits than online shopping over the next 12 to 18 months, according to a sector report released by Moody's Investors Service on Tuesday (July 31).

Nonetheless, analysts are maintaining their credit profiles on rated Reits (real estate investment trusts) such as CapitaLand Mall Trust (CMT) which is rated "A2 stable", and Frasers Centrepoint Trust (FCT) which is rated "Baa1 stable".

"The addition of new retail space reduces the likelihood of a major recovery in rents, while the growing popularity of online shopping reduces demand for physical retail space," analysts from Moody's said.

"However, online shopping makes up a small proportion of Singapore's total retail sales. We expect brick-and-mortar retail to be supported by landlords' initiatives to keep malls attractive and relevant to shoppers, Singaporeans' preference for physical shopping, and the country's position as a regional shopping hub."

For malls to remain attractive, landlords will have to utilise innovative retail concepts and keep their malls updated, Moody's said.

"Technological advancements and the growing influence of the millennial generation, who are far more tech savvy, have created challenges for retail landlords. Landlords are being proactive with keeping their malls updated with regular asset enhancements.

"They are also adding new features such as click-and-collect services, which combine an online order with a physical visit to the store, as well as mobile applications to carry out promotions to draw shoppers to malls."

That being said, the credit rating agency pointed out that Singapore's brick-and-mortar retailers' distinct strengths will help offset certain challenges from online sales.

Among other things, Singapore is a shopping hub within South-east Asia, and carries a large variey of products that might not be readily available in the rest of the region, Moody's said.

"We expect the country to remain a tourist destination for shopping and entertainment. At the same time, Singapore's small size and connectivity within the country means that retail malls are frequented by many locals for their daily essentials as well as entertainment."

Overall, the impact of the weak retail environment on rated retail Reits will be mixed, and analysts from Moody's expect FCT to be less impacted than CMT.

"FCT's whole portfolio is in suburban areas, which are more resilient to fluctuations in retail spend since the malls cater to residents living in nearby housing estates," Moody's said.

"However, we expect both CMT and FCT to maintain their financial metrics within their respective rating parameters given their proactive lease management, attractiveness of their malls to tenants because of their location and quality, and prudent financial management."