Singapore's Retail Malls Maintain Investor Attraction

The Singapore retail sector was among the hardest hit by the coronavirus outbreak, otherwise known as COVID-19.

According to the latest retail sales data released by the Singapore Department of Statistics, total retail sales plunged 40.5% year-on-year in April 2020, the highest drop ever recorded. Of the S$2.1 billion in retail sales recorded in April 2020, an estimated 17.8% were made online, considerably higher than the usual proportion of about 6%.

About 80% of retail businesses were required to temporarily cease operations during the Circuit Breaker, with only a selected number of essential businesses allowed to remain open. Social distancing and sanitary measures implemented reduced footfall in all commercial precincts, as authorities urged citizens to stay at home.

The usually crowded Jewel Changi Airport shopping mall appears empty during the Circuit Breaker period (Image: Shutterstock)

In addition, a complete halt of tourism visitation – which accounts for about 13% of total retail sales in Singapore – as well as growing economic uncertainty and mounting job losses further exacerbated the drop in retail spending during that period. A similarly poor retail sales performance is expected in May 2020, and experts expect that it will take several months for the retail sector to recover from the outbreak.

A promising outlook for Singapore's retail sector

At first glance, the gloomy outlook suggests that the odds are stacked against retail mall assets in Singapore, though we beg to differ. 

"Despite the economic uncertainty, the three pillars of the Singapore economy - government, businesses and households – all retain a very strong balance sheet."

We believe that the impact of COVID-19 on retail malls was supply-led and temporary in nature. The long-term prospects of retail as an investment asset class remains very bright in Singapore.

We discuss five reasons why retail malls remain attractive and promising investment assets in the Singapore market.

#1 Solid economic and business fundamentals

Despite the economic uncertainty, the three pillars of the Singapore economy - government, businesses and households – all retain a very strong balance sheet.

The Singapore government is in a strong financial situation where its past reserves and large infrastructure programmes can be leveraged to stimulate the economy. Businesses are globally competitive, well-capitalised, and have the financial means to cruise through turbulent times without massive layoffs. Households have some of the world’s highest per capita income, savings rate and accumulated wealth.

While it will take some time for the economy to fully recover, the economic conditions are in place for consumption levels to remain high once all government restrictions are lifted.

#2 Retail malls are a key feature of Singapore’s urban landscape

Owing to its tropical climate, high urban density and well-developed rapid transit system, Singapore’s urban development model relies on retail malls as the city’s main commercial and socialisation hubs.

"... Shopping malls in Singapore form an integral part of the urban landscape and consistently achieve the highest footfall of any other types of locations."

Singaporeans and visitors prefer the climate-controlled environment and convenience of malls over outdoor-oriented commercial locations. High-density living in Singapore allow malls to act as major community nodes and meeting spaces in both the central and suburban areas.

Unlike in Europe and the US where cities were built around outdoor commercial streets and plazas, shopping malls in Singapore form an integral part of the urban landscape and consistently achieve the highest footfall of any other types of locations.

#3 Singapore malls are adaptable to shifting trends

The global retail environment is changing rapidly – and Singapore retail malls can adapt and evolve accordingly. Singapore retail malls are recalibrating their tenant mix to include larger proportions of food and beverage (F&B) outlets, activity-based tenants, experiential retail concepts, and community uses.

Funan in Singapore's city centre comprises a combination of retail, office and serviced residence components (Image: Shutterstock)

The fact that Singapore malls are strategically located, serve a large catchment area population and attract high constant footfall provides good conditions for adaptation to new retail trade mix. Shorter leases and small retail spaces than their US and European counterparts also make retail malls more resilient in the face of constantly changing retail environments.

#4 Land scarcity and Government-controlled supply

Singapore is a land-scarce nation where the government controls the supply of commercial space through long-term planning policies and government land sales.

Unlike in countries such as the US and Australia where developers can use urban sprawl and land availability to their advantage, the supply of commercial properties in Singapore is strictly regulated by government authorities. The planning controls limits the supply, benefiting the existing established malls. This means that retailers enjoy a larger foot fall and subsequent sales numbers, making it more sustainable for all parties.

This high barrier to entry makes retail malls very resilient assets in terms of capital values and future appreciation.

#5 Strong tourism and domestic retail markets

Retail malls in Singapore have the best of both worlds, by having access to a domestic market with one of the world’s highest per capita spending power and a large – and growing – international tourism visitor market.

"Retailers will shift their focus to the local high-spending residents who – in the absence of travel opportunities – will shop and spend locally instead... With limited opportunities, it is the smaller suburban retail that has been the focus of the investors."

In 2019, Singapore welcomed over 19 million visitors – more than three times its total population – who accounted for about 13% of total retail sales. The reliance on both a strong domestic market and tourism demand provides stability to retail malls and their tenants who could adjust their offering and merchandising to cater to one or both of these groups.

In the aftermath of the pandemic crisis, tourism will be slow to resume and retailers will shift their focus to the local high-spending residents who – in the absence of travel opportunities – will shop and spend locally instead.

Retail malls located near residential areas in the suburban areas are particularly well-positioned to benefit from the post pandemic recovery, as they are less exposed to international tourism spending and have a retail mix that caters to their catchment area consumers.

JEM in Jurong East is the third largest suburban retail mall in Singapore

Investors recognise that today's retail figures are lower than expected. However, with limited opportunities, it is the smaller suburban retail that has been the focus of the investors.

It is the small malls that have a strong and stable grocery / convenience with high percentage of good quality F&B options that cater for the immediate catchment area. Going forward, a well-positioned retail mall with good access to the MRT or transport links provide the necessary amenities for the working population.

In short, Singapore retail malls remain an attractive asset class for investors with a long-term investment horizon.

[This article has been updated as of 11 August 2020]

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