Betting on retail assets

April 15, 2008
PROPERTY OUTLOOK
Betting on retail assets
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.'

EastLiving.com.sg

Contact Stuart Chng: (65) 9691 9907
Email: stuart.chng@eastliving.com.sg

EastLiving - Singapore Property and Real Estate DB