Is the Jurong Gateway development too ambitious?

Analyst says the targets set at the Jurong Gateway site require somewhat vigorous occupancy rates in the first year to attain the desired 6% yield.

Here’s what OCBC Investment Research noted:

CapitaMall Trust (CMT) will be building a 25-storey retail-cum-office property at the newly acquired Jurong Gateway site. With two other CMT malls in the vicinity (IMM and JCube), CMT’s selling proposition is to create a “3-in-1” mega mall in Jurong, offering 1m sqft of retail NLA within three minutes’ drive from each other in Singapore’s soon-to-be largest regional hub. CMT has also guided that it is targeting rentals of S$16-S$18 psf pm and S$7-S$8 psf pm for the retail and office segments respectively, with an initial yield-on-cost of 6%. We think these targets are fairly tight and require somewhat vigorous occupancy rates in the first year to attain the desired 6% yield. In addition, unlike the Tampines Regional Centre, which is hailed as the “financial hub in the east”, the Jurong precinct does not have a strong financial institution catchment base. We therefore remain wary of (1) the office take-up in that area, with the nearby International Business Park, JTC summit and iHub buildings offering cheaper alternatives and (2) “retail tenants’ fatigue” among the four malls within a 500m radius from the MRT station.

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