Complete Property Market Updates of Singapore

April 29, 2008

Betting on retail assets

Filed under: Uncategorized — Propertymarketupdates @ 4:26 am

Asia’s retail and hospitality sectors are expected to benefit from strong growth in intra-regional travel, reports UMA SHANKARI

DEVELOPERS are investing in the retail and hospitality sectors in Singapore and the rest of Asia in a big way, banking on an expected surge in retail spending and tourism.

Consumer spending in the region is supported by rising income levels that are translating into retail sales and the development of the shopping scene into something closer to that in the US and Europe. One clear sign of positive retail sentiment is that many international and luxury brands are expanding into major retail hubs across Asia, CB Richard Ellis (CBRE) points out.

Some of the world’s biggest names, including Bulgari and Giorgio Armani, unveiled flagship stores in Tokyo in the fourth quarter of 2007 – despite Japan’s overall sluggish economic recovery.

The rise in retail spending in Asia is also driven by growing intra-regional tourism, industry players say.

Asia continues to benefit from its position as the world’s second-most visited region after Europe, achieving record growth in terms of hotel occupancy and average room rates in 2007.

South Asia and South-east Asia in particular enjoyed double-digit growth in revenue per available room, with South Asia seeing a 40.4 per cent increase and South-east Asia seeing 16.9 per cent growth, according to data from industry body, the Pacific Asia Travel Association (Pata).

Cushman & Wakefield (C&W) noted in a recent report: ‘Inter-regional in-bound visitors are expected to continue in the medium-term, but the greatest growth will be intra-regional through the continuing expansion of road and air routes throughout Asia, including budget airlines, as well as the enhanced capacity of the new aircraft – the A380 and B787.’

Intra-Asia travel is expected to be especially strong on two routes – Hong Kong traffic into Japan is expected to grow 17 per cent from 2007 to 2009, while the number of visitors from the Chinese mainland to Singapore is expected to grow 16 per cent in the same period.

In view of all this, it is perhaps not surprising that investors and developers are forking out big bucks for retail and hospitality property such as hotels, serviced apartments and malls, as well as assets such as retail and hotel-based real estate investment trusts (Reits).

The interest in retail assets is driven by expectations of a broad-based increase in rents and capital values in Singapore, brought on by increased retail spending.

Singapore’s retail sector was especially active in 2007, with retail sales totalling some $23.8 billion – 7.1 per cent higher than in 2006. This year, retail sales are expected to grow about 5-10 per cent and demand for retail space is expected to remain strong.

In a recent report, Credit Suisse said it expects retail growth here to be supported by benign economic indicators, high population growth, increasing household income, tourism growth and other ‘feel-good’ factors.

‘This is expected to drive rentals up 5-10 per cent, translating into 10 per cent rental revenue growth for suburban malls and 20 per cent for central malls in 2008 given strong reversions,’ Credit Suisse analysts Shirley Wong and Leng Chye Teo said.

The research team recently initiated coverage of three Singapore-listed retail Reits: CapitaMall Trust, Frasers Centrepoint Trust and Macquarie Meag Prime Reit, with ‘outperform’ calls on the first two and a ‘neutral’ call on the third.

CBRE said similarly that retail rents are likely to increase in 2008, albeit at a more moderate rate due to an abundance of choice for retailers as a significant amount of new space comes on stream. ‘We expect both Orchard Road and suburban mall rents to increase 3-5 per cent in 2008, down from our earlier estimate of 4-7 per cent for Orchard Road and 3-6 per cent for suburban malls,’ CBRE said.

However, the retail sector here will have to grapple with downside risks such as rising inflation, the trickle- down impact of the US sub-prime mortgage crisis and lacklustre global stock markets, property analysts say.

The outlook for the hospitality sector is a bit more bullish. In particular, Singapore, which enjoyed record growth in terms of both occupancy and room rates in 2007, is expected to see more corporate and meetings, incentives, conventions & exhibitions (MICE) travellers. Industry players believe this segment will continue to grow even if leisure tourism were to slow.

Hoteliers here have told BT they expect room rates to shoot up another 25-40 per cent this year, driven by the Formula One Grand Prix race and the tight supply of hotel rooms. Room rates rose 15-25 per cent in 2007.

One new trend that is expected to shake up both the retail and hospitality sectors across Asia is the arrival of gaming in a big way.

Right now, roulette wheels are spinning and jackpot machines are whirring in casinos across a dozen Asian countries, C&W noted in a report.

Investment in casinos is continuing apace in Macau – thought by many to be Asia’s gambling capital – where there are currently more than 20 casino complexes. Singapore is about to open its own two integrated resorts, while Japan is moving closer to an overhaul of its strict gambling laws – which could see luxury casino complexes opening in Tokyo and on the southern island of Okinawa by 2012. Other countries reportedly considering lifting bans on casinos include Taiwan, Thailand and Indonesia.

Said C&W: ‘Governments may not always be totally happy with the idea of their citizens gambling, or tourists pouring in for slot machines and blackjack, but Macau’s US$7.2 billion in gaming income, US$15 billion in investment in just five years, 68.7 per cent surge in construction investment, an 80 per cent rise in property transactions, large-scale convention centre and hotel construction, thousands of new jobs and 19 per cent per annum retail sales growth are mighty powerful inducements – and most (governments) seem to think these are numbers worth betting on.’

Source : Business Times – 15 Apr 2008

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