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Retail rentals to grow 2% by 2014: UOB Kay Hian


Here’s s slew of new retail concepts entering Singapore.

According to UOB Kay Hian, it expects retail rentals to remain resilient, rising 0-2% in 2014, supported by stable retail demand and moderate new supply. Orchard and suburban prime rents remained unchanged in 9M12 at S$31.60psf and S$29.75psf respectively. 

"The resilience of rentals was due to high island-wide occupancies of 94% for retail space in 3Q12 and rising retail sales which, excluding motor vehicles, rose 0.3% mom and 1.6% yoy in Oct 12."

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New retail concepts will continue to expand both in the prime Orchard shopping belt and beyond. Upcoming supply in Orchard remains subdued, while high precommitments for retail space in Jurong East have largely overcome concerns over an overhang of suburban retail supply. Retail rentals are expected to remain resilient as they are supported by high occupancies and new tenant demand. 

Acquisitions to drive interest in retail REITs in 2013. We expect retail REITs to focus more on acquisitions in 2013 as valuations cap rates for retail malls remain attractive at 4.5-6.0%, while interest rates are expected to remain low until at least 2015.

With retail REITs trading at P/B of 0.9-1.3x and offering forward yields of 4.9-5.8%, acquisitions are likely to be yield-accretive to their portfolios.

New retail concepts entering Singapore. The republic continues to draw new retail concepts due to its mature retail market supported by rising tourist arrivals. Singapore is also regarded as an entry point into the thriving Southeast Asia region, with retail brands establishing flagship stores there to address demand from the region.

New-to-the-market retailers entering Singapore in 2012 included Tory Burch (Wisma Atria), Dean and Deluca (Orchard Central), Crate and Barrel (Ion Orchard) and Goods of Desire/G.O.D (Central @ Clarke Quay). Singapore is also attracting international and regional F&B players such as Jollybee (the Philippines), Smoothie King (USA), Saladworks (USA) and Madame Kwans (Malaysia). 

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