SPH REIT’s Annual Report: 3 Major Trends in Singapore’s Retail Industry

SPH REIT  (SGX: SK6U) released its latest annual report in November this year.

The real estate investment trust (REIT) is the owner of two retail properties in Singapore, namely, Paragon and Clementi Mall. SPH REIT’s sponsor and main shareholder is newspaper publisher and property developer Singapore Press Holdings Limited  (SGX: T39).

Beyond its own business, SPH REIT also touched on the retail trends that it sees. Below are three major themes I picked out from the report that investors can learn from.

No surprise, online buying is on the rise

“According to a joint study by Google and Temasek Holdings, Singapore’s e-commerce market is expected to grow more than five times from US$1.0 (S$1.4) billion in 2015 to US$5.4 (S$7.5) billion in 2025. In line with this expansion, e-commerce is expected to account for 6.7% of Singapore’s retail trade by 2025, up from 2.1% in 2015.”

It is no longer a secret that e-commerce is likely to make up a larger piece of the retail industry in Singapore in the future. But according to the study cited, e-commerce will still make up less than 7% of Singapore’s retail sales even in 2025. Brick and mortar companies might have to offer both online and offline purchasing options (dubbed “bricks and clicks”) to stay relevant in the retail game:

“The growth of omni-channel marketing is expected to boost in-store retailing, as companies integrating between online and offline presence, leading to more bricks and clicks.”

Competition is global, not local

With the rise of e-commerce, the competitive landscape becomes global rather than just local. SPH REIT noted:

“Google’s Consumer Barometer Survey 2014/15 showed Singapore as having the highest frequency of online international purchases, driven by more appealing offers, a broader range of products and better payment and service conditions from overseas e-retailers.

Meanwhile, VisaNet highlighted that 20% of its e-commerce transactions in Singapore are crossborder transactions, with top corridors being US and UK.”

SPH REIT’s malls will have to elevate itself to compete on a global level and offer what global online companies are not able to do.

Tourist spend

Another source of income would be tourist spend. Malls along Orchard Road (that includes Paragon) can be more sensitive toward the changes in tourist spend. SPH REIT talked about two important groups of tourists:

“The increase in international visitors to Singapore was largely supported by a resurgence in the number of Mainland Chinese visitors, which reached 2.1 million in 2015, a 22.3% increase from 1.7 million in 2014.

Visitor arrivals from ASEAN and Australia moderated by 6.0% and 2.9% respectively in 2015, owing partly to the stronger Singapore Dollar. Nonetheless, the government continues to regard ASEAN as a key source market, as it accounted for almost 40% (5.75 million visitors) of overall international arrivals over the past decade”

It is noteworthy that Paragon has maintained 100% occupancy despite the subdued tenant rental situation on Orchard Road in recent times.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.