Suburban malls need to watch out for ageing population, lure of shopping across the Causeway

Suburban malls are highly prized and have thus far been very resilient

May 20, 2024

SUBURBAN malls here are an extremely resilient property asset class. Many of these malls recovered well from the Covd-19 pandemic, with strong occupancy levels and rental rates.

Investor appetite for suburban malls, which are limited in supply, is strong. Earlier this year, Allgreen Properties bought The Seletar Mall, located in Sengkang, for S$550 million or about S$2,900 per square foot (psf) of net lettable area (NLA) – over 14 per cent higher than the property’s end-August 2021 valuation.

Recently, Frasers Property Limited : TQ5 0% (FPL) reported an 82 per cent year on year drop in net profit for the half-year ended Mar 31 on the back of non-cash unrealised fair-value losses and impairment on some of its commercial properties in the UK and Australia, as well as lower residential contributions from Singapore and Thailand.

Nonetheless, FPL holds an ace – Frasers Centrepoint Trust : J69U 0% (FCT), which largely owns Singapore suburban malls. FPL owns FCT’s manager and had a deemed interest of over 41 per cent in FCT according to the trust’s latest annual report.

For its half-year ended Mar 31, FCT’s Singapore retail portfolio saw rental reversion of 7.5 per cent.

As at end-March, FCT’s Singapore malls had a committed occupancy rate of nearly 100 per cent. In comparison, Mapletree Industrial Trust’s : ME8U 0% occupancy rate in the quarter ended March was 89 per cent for high-tech buildings and 81 per cent for business park buildings in Singapore.

Listed in 2006, FCT joined the 30-member benchmark Straits Times Index in March.

When FCT listed, its largest asset was Causeway Point, located in Woodlands. This property’s valuation as at end-September 2023 of S$1.34 billion is 115 per cent above its appraised value of S$622 million as at end-2005 based on the average of two valuations conducted by independent valuers.

Causeway Point has a gross floor area of over 629,000 square feet and sits on land with an initial lease of 99 years. It is seamlessly connected to Woodlands Regional Bus Interchange and Woodlands MRT station.

The property’s value grew despite its land lease running down by about 18 years and a slight decrease in NLA. Growing net property income supported the valuation increase.

Performance drivers

Despite online shopping’s growing popularity, large suburban malls here thrive.

Competition may be limited given strict planning guidelines. Meanwhile, suburban malls generally serve a ready catchment comprising the many residents living in public and private housing nearby.

While many people shop online, people continue to visit their neighbourhood malls for grocery shopping, dining and services such as beauty, healthcare and education.

Take food and beverage’s (F&B) growing contribution at Causeway Point. At end-2005, F&B accounted for 17 per cent of the property’s NLA and 22 per cent of gross rent.

For FCT’s financial year ended Sep 30, 2023, the F&B segment’s share of NLA and gross rental income at Causeway Point were 25 per cent and 32 per cent respectively.

Suburban malls owned by strong single party owners likely enjoy an edge over retail spaces that are owned by multiple strata-owners because of active asset management.

The tenant mix at well-run suburban malls constantly evolves to cater to changing consumer needs. Asset enhancements also help ensure better space usage.

Moreover, large suburban mall owners such as FCT or CapitaLand Integrated Commercial Trust : C38U 0% can have a competitive edge. These groups might enjoy stronger bargaining power with tenants and have more data on retailers as well as consumers.

Indeed, operating suburban malls here can be fairly straightforward as customer preferences in Jurong may differ little from those in Punggol, Yishun or Woodlands.

Threats

However, there are two major longer-term threats to the resilience of suburban malls.

First, Singapore’s population is rapidly ageing. The number of residents aged 70 years and over grew 102 per cent from 226,876 in 2010 to 458,802 in 2023, versus a rise of 10 per cent of the total number of residents over the same period. Between 2010 and 2023, the number of residents aged 80 years or more and 90 years or more also more than doubled.

In 2023, 11 per cent of Singapore residents were aged 70 years or more, versus 6 per cent in 2010.

Looking ahead, consumption at suburban malls might falter as the proportion of elderly residents continues growing. Some elderly persons may be hindered by mobility issues or lack confidence to venture out on their own – this could affect shopper traffic and spending at retail spaces.

Second, a possibly larger threat looms in the shifting of spending by our resident population from suburban malls here to retail outlets in Johor Bahru, capital of Malaysia’s Johor state.

Today, many Singapore residents brave massive jams at the Woodlands and Tuas land checkpoints to shop and dine in Johor Bahru. Some residents cross the Causeway for hair services, dental care, facial treatments, manicures and pedicures, massages and so on.

Many goods and services costs much less in Johor Bahru than in Singapore, in part because of the Singapore dollar’s strength versus its Malaysian counterpart.

In time to come, more residents might skip suburban malls here and shop in Johor Bahru when transport connectivity between Singapore and Johor Bahru improves. The Johor Bahru-Singapore Rapid Transit System (RTS) Link can be a game changer.

When the RTS Link is operational, possibly by end-2026, the train journey time between Singapore’s Woodlands North MRT station and Johor Bahru’s Bukit Chagar station will be about five minutes. As the immigration facilities of Singapore and Malaysia will be co-located at both stations, passengers only need to clear the immigration authorities at departure.

Might many people relocate from Singapore to Johor Bahru in future and thus do most of their spending there? Couple that with residents living here making many more shopping trips to Johor Bahru going foward.

Singapore’s large suburban malls are richly valued for their defensive nature. Serving customers who frequent suburban malls in hot and humid Singapore as a way of life has to-date often yielded good returns for asset owners.

Still, suburban mall owners, operators and would-be investors should be mindful of chinks in the armour of what has been a highly resilient property asset type. The owners and operators must find ways to repel the threats posed by an ageing population and the lure of shopping across the Causeway.

https://www.businesstimes.com.sg/opi...cross-causeway