Chart of the Day: Here's why retail REITs aren't headed for a rebound anytime soon

Fundamentals are weak and headwinds are rising.

Listed mall landlords are unlikely to see a significant rebound in their share prices any time soon, as Singapore's crowded retail landscape continues to be plagued by declining sales and rising space supply.

According to Maybank Kim Eng, weak fundamentals are at the core of retail REITs' woes. Retail REITs are buffeted by three main problems: weak demand environment from slowing employment growth, low income growth, and weak tourist spending as visitor arrivals slip.

"We have grown more bearish regarding demand and rising competition. We expect rents to fall 1% per annum in 2015-16 which flattens rent reversions and cuts DPUs by around 3.7%," said the report.

Maybank Kim Eng estimates that the current supply of retail space translates to 152% of annual demand.

Although oversupply woes are almost non-existent in the Outside Central Region, the problem becomes extremely pronounced in the Downtown Core.

"The combination of low retail demand and strong supply is likely to cause competition between malls to intensify," Maybank Kim Eng warned.

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