Despite a gloomy outlook for retail malls, the long-term prospects of retail as an investment asset class still remains very bright in Singapore.
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
"Despite the economic uncertainty, the three pillars of the Singapore economy - government, businesses and households – all retain a very strong balance sheet."
#1 Solid economic and business fundamentals
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)
#4 Land scarcity and Government-controlled supply
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.
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