Going into 2025, DBS Group Research analysts Geraldine Wong and Derek Tan say that they continue to prefer suburban retail REITs given clearer organic growth visibility. They have named CapitaLand Integrated Commercial Trust (CICT) and Frasers Centrepoint Trust (FCT) as their top sector picks.
Singapore’s retail scene has “beaten all odds” since the pandemic and in 2024, they say. Suburban retail sales stayed resilient above 15% to 20% even though there was lower traffic to malls, while centrally located malls enjoyed higher footfall and sales on the rebound of tourists.
They analysts think that the overall retail sector should maintain favorable demand supply dynamics into 2025, as the tight supply landscape has seen most dominant malls which are owned by CICT, FCT, Lendlease Global Commercial REIT (LREIT) and Mapletree Pan Asia Commercial Trust (MPACT) commanding industry-leading more than 99% occupancies and high rental growth.
“Tenant sales remain healthy side as occupancy cost at about 16% – 17% (in 2024) and below pre-Covid levels (about 18% to 19%) with room to accommodate higher rents, which we see most landlords delivering more than 5% reversions in 2025, one of the stronger ones amongst real-estate subsectors,” they say.
Several factors shape the outlook for the retail sector in 2025, according to the analysts. For one, suburban retail sales have withstood the long-lasting influence of working from home (WFH) and e-commerce.
The retail sales landscape marks a third year of recovery this year, now mirroring that of 2019, supported by government cash handouts, growth in real wages, and a low unemployment rate maintained throughout the year. The analysts note that the 10M2024 retail sales value totals $40.4 billion, having increased 2.0% y-o-y and about 9% higher than 10M2019 levels.
See also: DBS remains ‘neutral’ on Singapore stocks with 2025 STI target of 3,950 points
On top of that, e-commerce spend continues to trend down, making up just 14.0% of total retail sales (x-motor sales) this year after peaking during the height of the pandemic in 2020-2021.
However, some pull-back factors, including the further normalisation of outbound travel by Singaporeans in 2024 catalysed by the strong Singapore dollar, and the ongoing trend of tourist downtrading, has reflected a reduced appetite for shopping and luxury goods.
Meanwhile, the analysts note that the domestic basket spend has tapered as Singaporeans spend more time overseas.
Inflation woes continue to bite in the world’s most expensive city, according to Julius Baer, as price inflation continues to pinch the common man’s 2.5% to 3.5% y-o-y, while the local spend per person tapers off from a high in 2023 as Singaporeans take more trips overseas.
On the other hand, tourist arrivals recovered to about 88% of pre-Covid levels in 9M2024, ahead of the Singapore Tourism Board’s (STB) projection of an about 81% recovery in the year. “Overall tourist days are at about 93% of pre-Covid levels, and we anticipate further recovery ahead, driven by a longer average length of stay,” the analysts say.
Although Chinese tourist receipts have surpassed 2019 levels, coming in at $14.9 billion in 1H2024, downtrading among tourists is still prevalent, with 2Q2024 shopping receipts at $1.22 billion or 12% below 2Q2019.
“The saving grace is higher spending on food, which surged by about 3.5 times compared to pre-pandemic levels. This reinforces the reduced appetite for physical goods and increased willingness to spend on experiences and dining out, aligning with the STB’s efforts to reposition Singapore as a food haven,” they note.
That said, a key area of focus for Singapore retail is the opening of the Rapid Transit System (RTS) in 2027, which will ease the connection between Singapore and Johor Bahru (JB) in Malaysia.
The additional retail leakage is estimated at 3%, lower than market expectations. “We estimate the RTS can catalyse an additional about $1.8 billion in retail leakage from Singapore per year… For now, we believe the impact of retail leakage from Singapore to JB is buffered by healthy retail sales in Singapore, which is above about 10% of pre-pandemic levels on a trailing 12-month basis,” they note.
They monitor Northern malls, service and F&B retail tenants to watch for risks.
Overall, the analysts name CICT and FCT as their top picks with a target price of $2.30 and $2.75 respectively. They also have “buy” calls for Paragon REIT, LREIT, Starhill Global REIT , CapitaLand China Trust and Sasseur REIT at target prices of $1.05, 75 cents, 68 cents, 95 cents and 95 cents each.
