Analysts at RHB Bank Singapore are keeping “neutral” on retail REITs, despite expecting sales to improve further in 4Q2024 and 1Q2025.
This is underpinned by a resilient global economic backdrop, spending related to upcoming festive seasons and year-end holidays as well as a healthy labour market
Retail sales in Singapore rose 2.2% y-o-y in October. On a seasonally adjusted m-o-m basis, retail sales grew 0.1% y-o-y.
The estimated total retail sales value in October was $4.1 billion, of which an estimated 12.7% was from online retail sales. This is lower than the 13.8% recorded in September 2024.
RHB believes the recent resurgence in activity in the residential properties segment may also boost the sector, by increasing demand for furniture and household items.
This pick-up in retail sales will be a positive boost for retail REITs, which have been slightly weighed down by slower tenant sales growth in the last few quarters, the analysts note.
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“This has raised concerns over the sustainability of rent growth, as well as the ability of shopping malls to sustain high occupancy rates. Based on the latest data, we notice that downtown and Orchard Road mall sales growth have started to ease due to last year’s high base effect and slightly lower visitor spend. Suburban malls, on the other hand, have remained largely resilient, tracking the growth of the broader market,” they add.
Key challenges for trusts in the sector remain higher operational costs for tenants due to manpower constraints and elevated inflation, which has had an uneven impact across various retailers. This has resulted in higher tenant turnovers, in RHB’s view.
“We expect retail property landlords to continue to focus on maintaining high occupancy rates, curating their mall tenant mix and attracting high-quality tenants while being slightly flexible on rental rates.”
Although the analysts expect the overall retail sector rent growth to remain positive, they think it would moderate to 1%-3% in 2025. This translates to positive mid-single digit rental reversions for the majority of Singapore retail REITs under the analysts’ coverage.
RHB’s top picks for the sector are CapitaLand Integrated Commercial Trust (CICT) and Starhill Global REIT . The analysts have “buy” calls on both trusts, with target prices of $2.30 and 58 cents respectively.
As at 10.35am, units in CICT and Starhill REIT are trading at $1.94 and 50 cents respectively.