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Retail property investment sales surge in Q4

Retail property investment sales surge in Q4.

The total value of big-ticket retail properties that have changed hands so far this quarter has surged to S$731.3 million, up 22.4 per cent from S$597.4 million in the preceding quarter and more than double the S$320.3 million in Q4 last year.

This tally as at Dec 8 was based on deals of at least S$10 million originating from the private sector. Perennial Real Estate Holdings and Singapore Press Holdings' S$265.5 million acquisition of an additional 60 per cent stake in a partnership holding Chinatown Point mall and four strata office units above it has been the biggest deal so far this quarter.

Also boosting the Q4 number was Master Contract Services' S$250 million acquisition of the lower three levels of the four-storey Heartland Mall-Kovan and two strata retail units in Havelock II near Chinatown from a fund managed by Alpha Investment Partners.

Cityvibe, near Clementi MRT Station, also changed hands recently for S$71 million. Despite the strong investment sales numbers for retail property since October, the year to date figure of S$1.837 billion is just 3.3 per cent higher than the S$1.778 billion for last year. This was due to the lower numbers in the second and third quarters of this year against their respective year-ago periods.

Market watchers are keenly awaiting a major retail property transaction in the first quarter of next year: Jurong Point. Singapore's biggest suburban mall, with a price tag of over S$2 billion or more than S$3,000 psf on commercial net lettable area, is understood to have garnered strong interest during an expressions of interest exercise that closed on Nov 18.

Commenting on 2016's performance, a property consultant said that investors, because they are faced with a limited supply of investible assets, are progressively willing to accept lower and lower yields. In Q3 2015, the appraised net yield for prime Orchard Road retail malls used to be 3.9 per cent; by Q3 2016, this had fallen to 3.6 per cent.

The same trend is expected for suburban malls and HDB retail properties. Retail property in Singapore offers higher yields than offices, residential property and hotels. Moreover, residential property investors are saddled with the additional buyer's stamp duty and seller's stamp duty. Industrial properties offer higher yields but investing in land leased by JTC is highly regulated. Also, rentals in suburban malls are more resilient as these malls cater to the daily needs of the masses living in the neighbourhood.

Investors in the Singapore retail property segment have thus far not been entirely perturbed by the headwinds facing retailers here. Even if tenants are facing a litany of issues including higher labour costs and online competition, well-located shops are still reporting low vacancies.

There is ready demand from potential tenants if rents are tweaked to reflect market conditions. Investors therefore have relatively certain cash flow, which helps them to manage their loan repayment risks.

However, the disadvantages of retail real estate is that it requires greater amount of asset management in keeping the malls or space well positioned to remain relevant to tenants and patrons. Therefore the degree of care in managing a mall is much greater than for the other real estate asset classes.

Adapted from: The Business Times, 13 December 2016