SINGAPORE’S suburban real estate investment trusts (Reits) are poised for growth next year, although there is a temporary risk in the form of retail business flowing to Johor Bahru (JB) by way of the Rapid Transit System (RTS) connecting the two cities, said DBS.
In a Dec 16 report, DBS Group Reserarch analysts Geraldine Wong and Derek Tan said that suburban retail has “more catalysts than risks”, and offers “strong growth prospects” for 2025. They continue to prefer the sector “given clearer organic growth visibility” on the back of “a strong macro-landscape for Singapore next year”.
However, the Singapore-JB RTS is a development to watch – it is also an “overhyped risk” to suburban retail, the analysts said.
Noting that the RTS will “ease the connection between Singapore (and) JB in Malaysia”, they pointed out “concerns about heightened retail leakage, similar to (the) shift in retail spend from Hong Kong to Shenzhen”.
The cross-border project is slated to begin operations in December 2026 and will have the capacity to serve 10,000 passengers an hour in either direction, with the journey taking about five minutes.
Based on average spending of S$100 to S$141 per person per day in JB, DBS estimates an additional “retail leakage” of S$1.8 billion from Singapore each year. That is 3 per cent of total retail value, said the bank.
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However, the lender expects this to be temporary. “Over time, we anticipate that shopping leakage to JB will be more of a fad than a lasting trend, and will be highly dependent on the maintenance of pricing differentials between the two borders.”
On the flip side, DBS predicts that centrally located malls in Singapore – which experienced a return of tourists this year – will become laggards next year, as a strong Singapore dollar is likely to persist and visitors spend less on shopping.
Nonetheless, Wong and Tan expect the overall retail sector to continue experiencing “favourable demand-supply dynamics” in 2025, with demand surpassing supply.
They added that a tight supply landscape has led to “most dominant malls commanding industry-leading” occupancies of more than 99 per cent, and high rental growth.
Top picks
DBS’ top picks in the suburban retail space are Frasers Centrepoint Trust (FCT) and CapitaLand Integrated Commercial Trust (CICT).
The bank favours CICT for its “commanding position within Singapore retail”.
Meanwhile, FCT’s “forward yields of 6.1 per cent at levels ‘too good to be true’” as well as its status as “a top beneficiary of a turn in interest costs” make the Reit a top sector pick, Wong and Tan said.
The analysts believe the suburban retail sector’s current price-to-book ratio of 0.85 time is “attractive”, supported by yields of 6.1 per cent forecast for FY2025.
While a turn in the interest-rate outlook could lead the sector to “normalise back” to a price-to-book ratio of 1 time, “investors have not priced in the ability to deliver steady organic and inorganic growth of between 2 and 3 per cent in 2025”, the analysts said.
