Real Estate

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

The giant sucking sound building up in Singapore's empty shopping aisles just got louder. After a 174-year run, John Little, a well-loved department store, plans to shut down by January.

Completing the karmic circle of birth and death, Inc. may start operations in the city in the first quarter. That's scant comfort for retail landlords. A market capitalization-weighted index of five real-estate investment trusts, led by Capitaland Mall Trust, which counts John Little as a tenant in its Plaza Singapura mall, has dropped 7 percent so far this quarter. More trouble may be looming.

Shopped Out
Singapore's retail landlords should worry about the recent drop in unit prices
Source: Bloomberg
*Market capitalization-weighted index of five REITs (Nov. 8, 2011=100)

With a vacancy rate of 8.4 percent, shopping spaces are already the emptiest in almost a decade. And that's with e-commerce accounting for just 2 percent of total sales. Considering that 20 percent of China's retail is already online, industry forecasts of 7 percent e-commerce penetration in Singapore by 2025 may be a "gross underestimation," says Raghav Kapoor, CEO of Smartkarma, a research website. 

A Loaded Trolley
E-commerce and slowing economy could curb Singapore landlords' dividend yield of 5.5%-6.8%
Source: Bloomberg

Add to that a slowing economy, and non-auto sales that have failed to grow since early 2014, and it's quite clear why most retailers are struggling.

One of the two things going right for retail landlords is low interest rates. The three-month interbank rate has held below 1 percent since June both because of delayed monetary tightening in the U.S. and fading expectations of a cheaper Singapore dollar.  But while that makes Singapore retail REITs' dividend yields between 5.5 percent and 6.8 percent look attractive at first blush, investment losses could pile up if the trusts' rental income comes under further pressure.

Shopping Voucher
The Fed's reluctance to raise rates this year has led to a drop in Singapore's benchmark interbank rate, increasing the attractiveness of retail REITs' dividend yields
Source: Association of Banks in Singapore, Bloomberg

The other saving grace is low leverage. Four years ago, every $100 of the REITs' assets was propped up by $39 in debt; that's now down to $31. Prudence is a great comfort in tough times: Landlords can mothball older malls, spruce them up to revive footfall, and jack up rents.

Still, the landscape is changing faster than retailers can cope.

Not Stocking Up
Singapore's retail landlords have been prudent about using debt to bulk up their portfolio of malls
Source: Bloomberg
*Market capitalization-weighted average of five Singapore retail REITs.

Raoul, a fashion brand of the homegrown retailer FJ Benjamin Holdings Ltd., disappeared from shops earlier this year. The last John Little store on the island is about to follow suit. Meanwhile, Alibaba Group Holding Ltd. is pumping a fresh S$187 million ($135 million) into Singapore Post Ltd. after completing a S$86 million investment in SingPost's logistics business. Separately, Alibaba-backed Lazada Group SA has agreed to buy a Singaporean online grocer, RedMart.

If an Amazon-Alibaba war breaks out in earnest, Singapore's warehouses might be a more interesting investment option than deserted stores.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. A stable Singapore dollar against the U.S. currency, the consensus expectation for end-2017, precludes the need for higher interest rates on Singapore dollar deposits to compensate for exchange-rate depreciation. 

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Andy Mukherjee in Singapore at

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Paul Sillitoe at