With their stable growth potential and strong yields, retail malls are highly attractive to investment funds in the Singapore property market. Currently, there are approximately 10 major shopping centres purchased by real estate investment trusts (REITs) or securitised via bonds issued by special purpose vehicles. The trend shows no signs of abating, the most recent purchases being three suburban shopping centres – Lot 1 Shoppers’ Mall, Bukit Panjang Plaza and Rivervale Mall. These were recently acquired by CapitaLand Commercial Limited (CCL) and will be held by its newly set-up private fund, CapitaRetail Singapore (CRS). CRS plan to offer the malls to CapitaMall Trust after it has enhanced the malls and improved their yields. Capitaland is the major shareholder of Australian development group Australand. As more malls become held by investment funds, what kind of impact will this have on the retail market? Most mall owners will aim to take in tenants who can offer the highest possible rents and retail property funds are no exception. Indeed, the goal of every investment is its level of return. The job of the fund managers is to maximise the income stream of the malls. The common approach of achieving that is through improvement in the tenancy mix and asset enhancements. The frequent upgrades ensure that the quality and attractiveness of the shopping centres are maintained. This will draw good crowds and make it a desirable location for retailers, enabling the malls to command a premium for its rentals. Even though the chain stores are able to offer better rents and pull crowds, unique individual shops give shopping centres a diversity that makes a difference. Therefore, it is crucial that while focusing attention on the returns, REITs and retail property fund managers must also keep in mind the fundamentals of market differentiation and tenant diversification especially when they have the resources to make a difference and prevent bland uniformity. Without a doubt, malls such as Wisma Atria, Parkway Parade, Tiong Bahru Plaza and Tampines Mall have vastly improved in terms of tenant mix, positioning, asset enhancement and attractiveness since the funds took over. These improvements could also include fresh concepts and new retailers to help to inject more excitement into the retail scene. As long as the new mall owners continually to strive to raise the quality of their shopping malls, not just the physical aspects but also in retail ideas and choices, it will benefit both the owners and the shoppers.
While this is important, there is a danger that the strong focus on returns by investment funds may translate into adverse rent hikes and possibly worsen the “uniform syndrome” situation. Smaller individual retailers may get left out of the mix because they do not have the financial muscle to meet rental levels. Instead, the large retail chains usually end up the winners. It is also often part of their strategies to establish their presence in as many locations as possible. Already we tend see an identical line-up of shops in most of the major malls.
*By Silvia Wang, CB Richard Ellis Singapore.
