Retail REITs still resilient amid accelerated declines in rents

Rent reversions across retail REITs in Singapore were mostly resilient, despite the acceleration in overall rent declines, said Credit Suisse in a report.
Rents in the retail sector fell -3.9 percent quarter-on-quarter in Q2, with the central area posting the biggest decline at 4.1 percent. Rents at city fringe and suburban areas continued to be slightly more resilient, with both areas down by around 3.1 to 3.2 percent.
“We saw pockets of negative reversions mainly among CMT’s malls in Jurong East and its centrally located assets,” it said.
CMT’s portfolio reversions remained low at +1.7 percent, with the largest positive reversions at Tampines Mall (+4.6 percent), IMM (+4.6 percent) and Plaza Singapura (+4.5 percent).
However, this was “offset by negative reversions at Westgate (-6.5 percent) and JCube as oversupply pressure persists in Jurong East,” said Credit Suisse. “Centrally located malls, Bugis+ and Atrium also saw negative reversions of -7.0 percent and -6.3 percent, respectively.”
Suntec City Mall also saw significant negative reversions.
“Suntec City Mall went through the first cycle of renewals at phase 1 of the mall where rents were originally signed at S$13.09 per sq ft/mth (the highest of the mall’s 3 phases) in 2013. We estimate that rent reversions were -18 percent.”
Meanwhile, retail space vacancy rates climbed +0.6 percentage points quarter-on-quarter to 8.9 percent in Q2 2016.
The suburban area recorded the biggest increase at +1.6 percentage points to 6.0 percent, which was partly driven by a 1.3 percent increase in retail space.
As such, Credit Suisse expects the vacancy to narrow over the next quarters as committed spaces may currently be under fit outs period.
Orchard Road saw vacancies increase 0.4 percentage points to 9.3 percent, while vacancies in the downtown area were up by 0.7 percentage points to 9.7 percent.
“Occupancy is still the highest for suburban retail, and we continue to expect it to provide the most resilience,” said Credit Suisse.
Nikki De Guzman, Editor at CommercialGuru, edited this story. To contact her about this or other stories email nikki@propertyguru.com.sg

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