Suburban malls shine amid retail gloom

City centre malls such as Ion Orchard (above) have felt the heat of the dip in Singapore's retail sector.
City centre malls such as Ion Orchard (above) have felt the heat of the dip in Singapore's retail sector.PHOTO: REUTERS

They have performed better than those in city centre, but have also seen falling rents

Suburban malls in the right location seem to be the only bright spots in the gloomy retail property scene, going by results from the September quarter.

R'ST Research director Ong Kah Seng noted yesterday that these malls have been performing better than those in the city centre.

The numbers from Frasers Centrepoint Trust underline the point.

Its suburban malls were the steady performers in the three months to Sept 30, with rents and occupancy rates holding up despite the overall weak retail sector. It reported higher revenue contributions from Causeway Point, Changi City Point and Northpoint, which made up 85 per cent of net property income for the fourth quarter.


CapitaLand Mall Trust (CMT) reported lower gross revenue from outlet mall IMM Building in Jurong East, due to ongoing renovations that began in July last year, but CMT's portfolio occupancy remained high at 96.8 per cent as at Sept 30. The trust also completed the acquisition of Bedok Mall, acquiring all the units in Brilliance Mall Trust and saying it complements the "current portfolio of mainly suburban malls... (and) strengthens our presence in the eastern part of Singapore".

SPH Reit's The Clementi Mall enjoyed 100 per cent occupancy during the 12 months to Aug 31.

The mid-market suburban mall reported an increase of 3.6 per cent in tenant sales to $242 million.

Mr Ong said such malls have the advantage of "a ready catchment for residents who live nearby".

He added that major malls like Westgate and Tampines Mall also attract shoppers from particular regions, especially on weekends.

However, suburban malls have not been spared from falling rents.

Prime retail ground floor rents in the suburbs fell 3.5 per cent from the second quarter to the third to $32.10 per sq ft (psf), said DTZ.

Prime retail rents overall fell 3.7 per cent over the same period to about $30.90 psf. DTZ also noted that average prime rents for ground floor space in Orchard and Scotts Roads slipped 3.5 per cent quarter on quarter to $38.45 psf.

Suburban malls have been able to stand out even as the retail scene has dipped in recent years, with even prime spots like Orchard Road feeling the heat. Major malls such as Ion Orchard, 313@Somerset, Orchard Central and Orchard Gateway opened following the 2008 financial crisis. "Orchard Road seems to have a surplus in new supply and retailing space. The net effect is increased leasing competition and retailers also find it harder to survive," noted Mr Ong.

Suburban malls could eventually face the same issues. Dr Lee Nai Jia, DTZ's associate director of research, noted that, from this year to 2019, more than four million sq ft of retail space in the suburban areas will be released. "With more retail options for consumers, malls in the suburban areas are expected to face greater competition," he added.

Older malls are trying to keep up. Tiong Bahru Plaza is spending $90 million on a revamp slated for completion next year.

But the challenges for the whole sector still remain, according to Maybank Kim Eng Research senior analyst Joshua Tan. He said labour restrictions have driven up the operating cost for retailers and crimped expansion plans, while the retail product is no longer "exciting".

"Shopping malls are hosting the same tenants, which tend to be global and local chains," he noted, adding that the high cost of land is a barrier to mall owners taking a risk with their tenant mix.

However, Credit Suisse thinks mall owners will see some improvement. "We expect an active tenant remix to help support modestly positive rent reversions at retail Reits, while a drop in utilities expenses due to lower oil and electricity costs will also bolster the bottom line.

A version of this article appeared in the print edition of The Straits Times on November 19, 2015, with the headline 'Suburban malls shine amid retail gloom'. Print Edition | Subscribe