Wednesday, January 23, 2019

Can SG Retail Scene Catch Up With Their Counterparts in HK?

Imagine yourself as a business owner who is looking out for a retail shop in an upper-scale mall located across either Singapore or Hongkong. 

The location could be located at the prestige Orchard Road or the Vivocity of Singapore or on the other sider at the oceanfront Harbour City or Times Square of Hongkong. 

Either location you choose are going to get you sales and visibility for your product or services, which based on historical evidence are evident on their traffic footprint.

Singapore Retail

I blogged earlier this month here on the 6th Jan 2019 on the back of SPH Reit's rental reversion results that we are going to see better days for Starhill, which I am very heavily vested in.

Since then, Starhill's share price has went up from 67.5 cents to the closing price of 71.5 cents today on the back of positive optimism.

In the article, I mentioned about how SPH Reit managed to obtain a double digit rental reversion for their new leases for Paragon and also sub mid-range reversion for their suburban malls which bode well for the overall rental market.

SPH Reit's solid rental reversion

Fraser Centerpoint Trust (FCT)'s recent result for Q1FY19 also confirms the strong demand in their suburban malls.

FCT's strong occupancy is not a surprise to many as it has always been that way for their suburban malls but what is surprising is the double digit reversion in their Causeway Point mall in Woodland. This does not come from a low base so to have a 11.1% reversion is extremely impressive.

FCT's strong rental reversion


In the Prime area, Mapletree Commercial Trust (MCT)'s reported results today for their Q3 which also confirms strong occupancy and leasing demand inquiry throughout the year.

MCT's strong rental reversion

This week, CBRE came out with their retail market review for Q4 2018 which confirms signs of stabilization in the lease occupancy and increasing market demand inquiries. Their report shows an average islandwide prime rents going up by 1.2%, supported by strong occupancies demand in both prime Orchard and Suburban malls.

The big placemaking for the last quarter saw a slew of openings by activity-based tenants, as there has been a strong push by landlords and management to inject life into their malls to further attract footfall and increase dwell time.

For example, in Vivocity, they recently opened up the largest national library which I have visited with my family over the last weekend during the opening.

The new largest library in Singapore opened recently at VivoCity

In Suntec, indoor activity Superpark took up a large double storey space requirements, making them one of the anchor tenants for Suntec City.

SuperPark awesome activity at Suntec

In Marina Square, we will soon be able to witness the opening of Nerf Action Xperience sometime in Feb 2019.



In addition to the these positive outlook on demand, there are going to be a sharp tight supply in the market over the next 3 years for the upcoming new spaces.

After a roundabout opening of The Jewel in 2019 which contributes the most of that 1.58m square feet, we are going to see almost a non-existent new malls opening throughout from 2019 to 2022.

This means that if you as a business owner are looking for a space in malls where the occupancy are above 90%, this means a heavier pockets to fill in favor of the landlord's market.

SG Retail Supply getting tighter over the next 3 years

This is similar to the hospitality industry where supply is going to tighten and basic economic knowledge tells us that inelastic demand like this means we are probably going to see a gradual increase in the rental lease, barring a sharp economic downturn or blackswan.

In the 4th Quarter of 2018, prime rents in Orchard are going at around $31.7 psf while for the suburban malls like Vivo and Causeway points are going at $29.15 psf.

If we look at these rents across their competitors across Asia (in particular HK and China), they have far more leg room to catch on in the next few years.

Heck, they didn't even grow because of inflation over the past 10 years here in Singapore.

And for Singapore Tourism Board to shape Singapore as a genuine tourism hub, this must be one of the index objective they will have to grow over the next few years ahead.



E-commerce threat

The E-commerce threat question somehow always came out when we talk and discuss about the retail scene. 

The thing is landlords are now incorporating this as a compliment to the business rather than a threat.

Online retailers are increasingly moving towards an omni-channel strategy which helps to create additional demand for physical retail space.

The recent opening of the new multi-label retail concept by Plaza Singapura takes retail into a brand new territory, where they have set up Nomadx stores that engages the public about knowledge and inquisite curiosity experience which then lead them to sales online.

One example shown below is the Taobao store. 

The New Retail Concept @ Plaza Singapura

Hongkong Retail

In the past few months, I’ve been reading the performance of a few retail malls in HK as part of my watchlist. 

One of those is Mapletree North Asia Commercial Trust (MNACT) which has 50% of their revenue earned from their HK office and retail building – Festive Walk. 

My personal experience visiting Festive Walk, which can be found here, shows many similarities in both the concept and retail brands across both countries.

If you look at their most recent rental reversion, they managed to score a rental reversion over 40% of their previous existing leases.

That is some crazy bad ass reversion out there.

MNACT crazy 40% reversion
This doesn't come from a low base, but they simply keep growing year after year since 2004.


Leasing momentum continued to get stronger due to the recent completion of the High Speed Rail and the HK-Zhuhai-Macau bridge, which essentially opens up the inbound tourism from China and Macau right straight into HK's retail pocket.

Final Thoughts

I think there's a decent chance that we might see a strong next 10 years reversion growth in the Singapore retail industry.

If we compare Singapore's prominent location in Asia compared to other strong market like HK, China and Japan, Singapore's current rental rate is almost as dirt cheap as second or third class market in their suburban areas, which I think is quite unwarranted.

While we never know whether things might catch up over the next 10 years, I think we (or maybe just me) can be confident that things are going to get better for the retail scene here in Singapore over at least the next 3 years, and even if I am wrong on it, I think it presents a lot of margin of safety in many of my assumptions, so I am not worried over losing too much on my position on my retail Reits.

But if this goes even slightly the right way, this could be a nice multi-year double digit returns which give a nice capital appreciation on top of the high yield you are now getting.

Vested with 247,000 shares of Starhill as of writing.

Thanks for reading.

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21 comments:

  1. Singapore is no longer the shopping paradise in Asia, we have priced ourselves out of the competition.. the smart Singaporeans will shop in Johor to save grocery bills, and the very smart one will buy from China online porters in China prices, after add in the delivery charges, it is still cheaper than buying from locally.....I buy majority of my goods now from Redmart, Furniture online porters, and online health food porters, with free delivery......FT are not spending much of their salary in Singapore, most of the earning are send back home.....these are some of the facts I know...please comments

    ReplyDelete
    Replies
    1. Hi Faith

      Yes your understanding is correct but I would apply it the same too for HK who can buy things much cheaper from their neighbour counterparts but the fact is the rents are kept increasing, retailers are amending their strategies and demand lease inquiry continued to be strong. All these factors combined with a short of supply will bode well over the next few years.

      But you are of course entitled to your own opinions.

      Delete
    2. Hong Kong is totally different, as shoppers from China is a very big market, if Malaysia and Indonesia (much smaller than China) can give us the same support like China supporting Hong Kong economics, it will be great to our retail market, unfortunately, Bolahland and Indo have become our enemy and are taking away our business, I have many friends shopping and dining in these 2 countries to save costs, they always asked me why Singaporeans are so stupid not to shop in Malaysia and Indo, they can't understand why Singaporeans dont shop with overseas online porters to save cost, they keep asking me these questions which I cant answer. China has many limitations like the milk powder is not safe, the medicines is fake, the watches and bags are fake, so the Chinese shop in Hong Kong. China market is so big that if 5% (around 75 millions, double the size of Malaysia) of them buy from Hong Kong, HK is booming......I dont have the figures, but logically a tourist must be very bad at mathematics to be willing to pay a much higher prices in Singapore.

      Delete
    3. Hi Faith

      Noted and thanks for your view :)

      Delete
    4. Sorry, I am not against your opinion, in fact I enjoy your article, but just sharing what I know.

      Delete
    5. Hi Faith

      Totally agree with your views as well.

      Myself I often shop online at Redmart and Taobao and also we often visited JB to get my children's diapers and milk. I think there are a bunch of us in our group that does things like that.

      Having said that, I think there are the slightly higher end of the retailers which cannot be replaced in my opinion. I agree that the tourist arrivals from China far exceeds the arrivals from our neighbouring countries and also their earning power, but I think to have HK rents that are almost 3x as high as the current Singapore lease also does not make it very reasonable either. If it is like closer to 1.5x maybe I can still take it but 3x I think is way too much.

      It is either the HK market is too expensive (and they are still growing) or the Singapore Market is really helpless. I chose to lean towards that there might be an opportunity for the sg market to play a catch up though it may not come true.but I don't think we will see a lot of slash from the current rental rate either, which from an investment perspective I think gives me my so called margin of safety in the overall consideration :)

      Delete
  2. B,

    If the new library at Vivo City is the largest you've visited in Singapore... Then its not wrong what you've wrote ;)

    You may want to take a trip to our National Library at Bras Basah road if you want to see the LARGEST one in Singapore.

    Wink.



    P.S. Most of the shopping malls today, more than 50% of the selling floors are into retailing of services. It's cool. You can't order online for services (yet) ;)



    ReplyDelete
    Replies
    1. Hi SMOL

      I'm actually a frequent member of the Brad Basah national library every week to go there with my children.

      I've been to both actually so I don't know which is the largest. The newspaper is saying the one at vivo is the biggest one at the moment.

      SG malls are typically catered towards f&b a lot more often and usually comprises around 30% of the retail spaces. I guess it's slowly evolving but the main attraction for the sg market is still the food and beverages.

      Delete
    2. B,

      LOL!

      This I have to poke you ;)


      You have been to BOTH. Which one bigger you don't trust your own eyes?

      Wink.





      Delete
    3. Hahaha the Bras Basah one with the building is definitely bigger but the library itself with the books I'm not so sure. It feels like the spread of books are bigger in the vivo city area.

      Delete
    4. Not right to compare with Bras Basah as this building include their admin, purchasing and finance offices.

      Delete
    5. I have not been to the library at Vivo City myself but if i am not wrong, the newspaper article which B has brought up, should be referring to the library as "biggest shopping mall library" or "largest public library in a mall". There are other such examples such as library@chinatown, library@orchard and library@esplanade.

      So technically the libraries at Vivo City and Bras Basah are of two different categories and it would not be a complete comparison.

      Delete
  3. Always nice to see Starhill REIT on its way back up. Too bad, I lacked the foresight to add more Starhill while it was trading below 0.65.

    ReplyDelete
    Replies
    1. Hi Edwin

      Indeed back then was a good opportunity when there are much more fear in the market.

      Delete
    2. Hi B,
      Looks like your foresight may be paying huge dividends in time to come! Noice.

      https://theunnecessaryjob.blogspot.com/2019/01/moga-make-orchard-great-again.html

      Delete
  4. I have been averaging down on both SGR and CRCT. Even in China where e-commerce is much stronger compared to Singapore, CRCT has been able to achieve positive rental reversion and high occupancy rate. The shops at Wisma and Taka are quite atas which made e-commerce a lesser threat. People tend to purchase higher price items from physical shops. I think heartland malls and upcoming Jewel pose greater threat to SGR than e-comm.

    ReplyDelete
    Replies
    1. Hi Terry

      Yeah I agree.

      I think new malls competitors and supply are a bigger threat than e commerce.

      Many malls are already Incorporating their omni channel strategy to make ecommerce a complement than a threat so I think it works well in that aspect.

      Delete
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