reporter2
22-02-22, 09:04
Some hope for malls but only fittest will thrive in tough climate
Deep pockets coupled with creativity and innovation as well as high quality property management can play an important role to ensure success
Feb 22, 2022
RETAIL landlords have been enduring tough times that were made worse by the Covid-19 pandemic. Data from the Urban Redevelopment Authority (URA) show that rental rates of retail space fell by 6.8 per cent year on year (yoy) in 2021, after falling 14.7 per cent in 2020. The island-wide vacancy of retail space was 8.1 per cent at end-2021.
Retail spending may be dampened by the impending rise in the goods and services tax and higher inflation, which will make consumers tighten their belts.
But the outlook for malls is not all gloomy as economic growth, rising income and reopening of the economy may lead to higher spending at malls.
Nonetheless, looking out to the next 5 to 10 years, retail landlords face big challenges.
More activities will be online. The younger generation, whose spending power will grow, is generally tech-savvy, while older people have also become more tech-savvy in the wake of the pandemic.
More purchases will be made online for categories such as fashion, groceries, electronic gadgets, books, toys, and pharmaceutical products. More services will also be performed online with possibly an explosive growth in online enrichment classes, gym classes, banking and consultations with doctors and therapists.
Dining out
Singaporeans like to dine out - the proliferation of food and beverage (F&B) outlets has helped malls.
Comparing December 2011 to December 2021, the rental contribution excluding turnover rent from F&B at Junction 8 and Plaza Singapura grew from 31.1 per cent to 37.6 per cent and 23.5 per cent to 29.8 per cent respectively.
In December 2011, rental contribution excluding turnover rent from F&B at Funan DigitaLife Mall was 17.4 per cent. That figure at the redeveloped and renamed Funan was 23.4 per cent in December 2021.
But the F&B sector has a high attrition rate and a challenging outlook. Earlier this month, restaurant operator No Signboard Holdings announced that its unit Hawker QSR cannot continue business because of its liabilities and will pursue voluntary liquidation. F&B operators such as Tung Lok Restaurants (2000) and Jumbo Group are loss making.
Amid the pandemic, consumption patterns have changed as consumers seek greater value and convenience, with more using online delivery. People dine out in smaller groups and capacity at venues is reduced by safe distancing. Going forward, perhaps malls cannot rely on F&B outlets to take up ever more space.
Still, there are brands growing their physical footprint and entrepreneurs launching new retail concepts. Japanese discount chain Don Don Donki has expanded to more than 10 outlets here in under 5 years, with more new stores in the pipeline.
Furniture giant Ikea opened its first small concept store in South-east Asia at Jem mall last year.
The area of occupied retail space here rose by 25,000 square metres (sq m) and 33,000 sq m in Q4 2021 and Q3 2021 respectively, according to the URA.
While the pandemic has led many people to spend more time at home and digital tools enable them to do more from home, retail spaces can still be relevant.
Attractive offerings
Even with comfortable abodes, people may not want to be always cooped up at home. And while they may soon spend more time in the metaverse, they will likely continue to want to go out to interact in pleasant physical spaces.
The challenge for retail landlords is to make their spaces compelling. Perhaps people will visit a mall to take photos for their Instagram accounts, experience the vibes of festive shopping or enjoy great communal spaces. Shoppers may be drawn by outstanding customer service or unique opportunities to experience a brand.
What may unfold with malls is flight to quality akin to what is being seen in the office property market here. Also, retailers may seek to have leases that have a high variable component so as to give them more flexibility.
While brands may gripe about rental costs, they will invest in having physical outlets if these help to generate healthy sales whether directly via transactions at the outlet or indirectly through brand building.
On the flip side, landlords with retail spaces that do not work may not be competitive even if they offer low rents.
Malls owned by the big property groups and real estate investment trusts will likely have an edge as these landlords can afford to incur the capital expenditure needed to keep their malls relevant. Also, landlords with larger networks are better able to use data on performance of tenants and habits of shoppers to enhance asset positioning.
Suburban malls
Suburban malls may fare better than downtown malls as they have dense residential catchment populations to serve. Trends such as working from home and decentralisation of offices also benefit suburban malls.
For CapitaLand Integrated Commercial Trust, average tenant sales per square foot at its suburban malls and downtown malls in 2021 were at about 96 per cent and 77 per cent of the levels in 2019 respectively.
Still, suburban malls need to offer a strong proposition to get people out of their homes. Moreover, some customers may visit another mall a few minutes further away from home instead of the nearest mall, if the former offers a better experience.
In the fight for shoppers, larger malls are likely to prevail as they can offer more experiences and choices. Just as brands like Apple create megastores to draw their fans, visitors to malls may gravitate to mega malls. Think of the likes of Vivo City, Jewel Changi Airport and Ion Orchard.
Retail trust Frasers Centrepoint Trust appears to be focusing on its larger malls - the trust divested smaller malls such as Anchorpoint, Bedok Point and YewTee Point over the last 2 years.
Consumers are growing more sophisticated and richer, which is great news for retailers and retail landlords. But consumers are spoilt for choice in shopping, leisure and entertainment.
Expect deep pockets coupled with creativity and innovation as well as high quality property management to enable a few malls to thrive while others struggle in a tough retail environment.
Deep pockets coupled with creativity and innovation as well as high quality property management can play an important role to ensure success
Feb 22, 2022
RETAIL landlords have been enduring tough times that were made worse by the Covid-19 pandemic. Data from the Urban Redevelopment Authority (URA) show that rental rates of retail space fell by 6.8 per cent year on year (yoy) in 2021, after falling 14.7 per cent in 2020. The island-wide vacancy of retail space was 8.1 per cent at end-2021.
Retail spending may be dampened by the impending rise in the goods and services tax and higher inflation, which will make consumers tighten their belts.
But the outlook for malls is not all gloomy as economic growth, rising income and reopening of the economy may lead to higher spending at malls.
Nonetheless, looking out to the next 5 to 10 years, retail landlords face big challenges.
More activities will be online. The younger generation, whose spending power will grow, is generally tech-savvy, while older people have also become more tech-savvy in the wake of the pandemic.
More purchases will be made online for categories such as fashion, groceries, electronic gadgets, books, toys, and pharmaceutical products. More services will also be performed online with possibly an explosive growth in online enrichment classes, gym classes, banking and consultations with doctors and therapists.
Dining out
Singaporeans like to dine out - the proliferation of food and beverage (F&B) outlets has helped malls.
Comparing December 2011 to December 2021, the rental contribution excluding turnover rent from F&B at Junction 8 and Plaza Singapura grew from 31.1 per cent to 37.6 per cent and 23.5 per cent to 29.8 per cent respectively.
In December 2011, rental contribution excluding turnover rent from F&B at Funan DigitaLife Mall was 17.4 per cent. That figure at the redeveloped and renamed Funan was 23.4 per cent in December 2021.
But the F&B sector has a high attrition rate and a challenging outlook. Earlier this month, restaurant operator No Signboard Holdings announced that its unit Hawker QSR cannot continue business because of its liabilities and will pursue voluntary liquidation. F&B operators such as Tung Lok Restaurants (2000) and Jumbo Group are loss making.
Amid the pandemic, consumption patterns have changed as consumers seek greater value and convenience, with more using online delivery. People dine out in smaller groups and capacity at venues is reduced by safe distancing. Going forward, perhaps malls cannot rely on F&B outlets to take up ever more space.
Still, there are brands growing their physical footprint and entrepreneurs launching new retail concepts. Japanese discount chain Don Don Donki has expanded to more than 10 outlets here in under 5 years, with more new stores in the pipeline.
Furniture giant Ikea opened its first small concept store in South-east Asia at Jem mall last year.
The area of occupied retail space here rose by 25,000 square metres (sq m) and 33,000 sq m in Q4 2021 and Q3 2021 respectively, according to the URA.
While the pandemic has led many people to spend more time at home and digital tools enable them to do more from home, retail spaces can still be relevant.
Attractive offerings
Even with comfortable abodes, people may not want to be always cooped up at home. And while they may soon spend more time in the metaverse, they will likely continue to want to go out to interact in pleasant physical spaces.
The challenge for retail landlords is to make their spaces compelling. Perhaps people will visit a mall to take photos for their Instagram accounts, experience the vibes of festive shopping or enjoy great communal spaces. Shoppers may be drawn by outstanding customer service or unique opportunities to experience a brand.
What may unfold with malls is flight to quality akin to what is being seen in the office property market here. Also, retailers may seek to have leases that have a high variable component so as to give them more flexibility.
While brands may gripe about rental costs, they will invest in having physical outlets if these help to generate healthy sales whether directly via transactions at the outlet or indirectly through brand building.
On the flip side, landlords with retail spaces that do not work may not be competitive even if they offer low rents.
Malls owned by the big property groups and real estate investment trusts will likely have an edge as these landlords can afford to incur the capital expenditure needed to keep their malls relevant. Also, landlords with larger networks are better able to use data on performance of tenants and habits of shoppers to enhance asset positioning.
Suburban malls
Suburban malls may fare better than downtown malls as they have dense residential catchment populations to serve. Trends such as working from home and decentralisation of offices also benefit suburban malls.
For CapitaLand Integrated Commercial Trust, average tenant sales per square foot at its suburban malls and downtown malls in 2021 were at about 96 per cent and 77 per cent of the levels in 2019 respectively.
Still, suburban malls need to offer a strong proposition to get people out of their homes. Moreover, some customers may visit another mall a few minutes further away from home instead of the nearest mall, if the former offers a better experience.
In the fight for shoppers, larger malls are likely to prevail as they can offer more experiences and choices. Just as brands like Apple create megastores to draw their fans, visitors to malls may gravitate to mega malls. Think of the likes of Vivo City, Jewel Changi Airport and Ion Orchard.
Retail trust Frasers Centrepoint Trust appears to be focusing on its larger malls - the trust divested smaller malls such as Anchorpoint, Bedok Point and YewTee Point over the last 2 years.
Consumers are growing more sophisticated and richer, which is great news for retailers and retail landlords. But consumers are spoilt for choice in shopping, leisure and entertainment.
Expect deep pockets coupled with creativity and innovation as well as high quality property management to enable a few malls to thrive while others struggle in a tough retail environment.