Moody’s: Increased supply of Singapore retail space bigger threat than online shopping

SINGAPORE (July 31): Singapore's retail Reits will face increased supply of space, which is a bigger threat than online shopping over the next 12 to 18 months, the Straits Times (ST) cited a sector report released by Moody's Investors Service on Tuesday (July 31).

However, analysts maintain credit profiles on rated Reits (real estate investment trusts) such as CapitaLand Mall Trust (CMT) — rated A2 stable — and Frasers Centrepoint Trust (FCT) which is rated Baa1 stable.

"The addition of new retail space reduces the likelihood of a major recovery in rents, while the growing popularity of online shopping reduces demand for physical retail space," ST quoted analysts from Moody's.

"However, online shopping makes up a small proportion of Singapore's total retail sales. We expect brick-and-mortar retail to be supported by landlords' initiatives to keep malls attractive and relevant to shoppers, Singaporeans' preference for physical shopping, and the country's position as a regional shopping hub."

ST cited Moody’s, who said innovative retail concepts and keeping updated will help keep malls attractive. 

"Technological advancements and the growing influence of the millennial generation, who are far more tech savvy, have created challenges for retail landlords. Landlords are being proactive with keeping their malls updated with regular asset enhancements.

"They are also adding new features such as click-and-collect services, which combine an online order with a physical visit to the store, as well as mobile applications to carry out promotions to draw shoppers to malls."

However, Singapore’s retailers have strengths that will help offset challenges from online sales.

"We expect the country to remain a tourist destination for shopping and entertainment. At the same time, Singapore's small size and connectivity within the country means that retail malls are frequented by many locals for their daily essentials as well as entertainment."

Impact of the weak retail environment on rated retail Reits will be mixed, and analysts from Moody's expect FCT to be less impacted than CMT.

"FCT's whole portfolio is in suburban areas, which are more resilient to fluctuations in retail spend since the malls cater to residents living in nearby housing estates," ST quoted Moody's.

"However, we expect both CMT and FCT to maintain their financial metrics within their respective rating parametres given their proactive lease management, attractiveness of their malls to tenants because of their location and quality, and prudent financial management."