Reits’ unrealistic rent demands contributing to S’pore’s retail woes

Our local retail scene is a challenging one, never more so than now, and industry experts agree on this (“Retail woes: Don’t blame the landlords”; July 15).

It is true that retailers must examine their product offerings and mix and their distribution channels, focus on consumer spending patterns and embrace online selling. Retailers, and we as an association, are addressing this closely.

But more worryingly, structural faults are besetting the industry, even those with the best product offerings and high footfall.

One indicator is that leading international brand principals are reportedly refusing to set up shop here. They are prepared to offer their products to local distributors, but the latter are not taking them. Many brands are therefore bypassing Singapore.

Also, many famous local retailers are not considering investments or new stores here going forward, but will be investing and expanding within the region.

The reason? Unrealistic rental demands resulting from the investor-landlord relationships that, in turn, have developed through real estate investment trusts (Reits).

Key landlords have admitted this in our ongoing association meetings. Landlords or property developers/managers, as the face of retail property, would admit that investors expect 5 per cent yield and 3 per cent growth yearly.

Growth comes from rentals, and yield from valuations. Both necessitate rental increases, regardless of the tenants’ sales or profitability. Rental concessions are not part of this equation, regardless of lower sales.

Most retailers here are now in the red — except the fast-moving consumer goods category, which gets by with minimal margins — yet they are funding these investors’ returns.

Retailers are large-scale employers, with many larger players operating at a loss to keep staff employed. The loss is not down to a lack of sales, but rather to the cost structure caused by rental hikes.

In comparison, more shopping centres are appearing in Kuala Lumpur, some with a rental waiver for the first year and a free store fit-out, courtesy of the landlord. Local retailers here and principals overseas know about the more favourable terms and are prepared to invest overseas.

Landlords we have spoken to admit there is a structural problem, and the onus is on them to package the market status and outlook correctly for investors to understand. The days of 5 per cent yield and 3 per cent growth have gone.

Unless this is accepted, many shopping centres may go the way of those in the United States, where some are no longer commercial entities but simply provide a social function, with zero per cent yield and growth.

We agree that the Government should not offer more space for retail development, but at the same time, landlords must communicate more realistically with investors and set the market accordingly.

If leading brands shut up shop here, the reason would be unsustainable rental hikes. The retail sales index does not lie. And with no growth in retail, there can be no yield or growth for Reit investors.