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SPH REIT’s Annual Report: A Look Into The Competitive Landscape Of Singapore’s Retail Industry

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

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).

In its annual report, SPH REIT touched on the local retail trends that it is seeing. Below are three major themes I picked out.

Retail space on Orchard Road

SPH REIT noted the following in its annual report:

“As at end Q2 2016, islandwide public and private retail stock was 64.8 million sq ft. Only some 12% (7.6 million sq ft) was in Orchard/Scotts Road where Paragon is located. There is limited new supply in Orchard/Scotts Road.”

Retail space on Orchard Road remains scarce. There is not much development expected in the coming years. In line with this, most of the new retail space in Singapore is expected to be added in suburban areas. SPH REIT reported:

“Some 4.0 million sq ft of retail NLA [net lettable area] in the pipeline from Q3 2016 to 2020, mainly in the Suburban Areas.”

Spending on Orchard Road is discretionary

While retail space is limited on Orchard Road, that has not quite translated to higher occupancy. Part of the reason is the fall in discretionary spending. SPH REIT noted:

“While Orchard/Scotts Road was more affected by the fall in discretionary spending, with occupancy in the area (90.8%) falling below islandwide levels, performance among shopping malls was relatively mixed.”

The situation is better at the suburban mall segment. SPH REIT noted the higher overall occupancy rates seen there:

“Meanwhile, suburban malls enjoyed the highest occupancy rate at 93.2% as at end Q2 2016. In particular, many suburban malls under REITs remained fully occupied (e.g., The Clementi Mall) or experienced an uptick in occupancy in recent quarters.”

Lower occupancy, lower rentals

Lower occupancy could cause lower rentals. SPH REIT noted that prime rents have been on the decline in 2015 and the first half of 2016:

“Among the retail areas, prime rents in the Other City Areas declined the most in 2015, by 6.9%, while those in Orchard/Scotts Road and the Suburban Areas were more resilient and fell by 5.0% and 5.7% respectively.

This trend prevailed in H1 2016, with prime rents in Orchard/Scotts Road and Suburban Areas falling by 2.2% and 2.0% respectively, while those in the Other City Areas fell by 5.0%.”

Malls in Singapore might have work to do to keep attracting shoppers through its doors.

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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.