Upcoming retail supply skewed toward suburban

Only 21% goes into urban region.

More retail supply of around 1.7m sq ft will come onstream in 2013, with these mainly skewed towards the suburban region or 79% of 2013 supplies, said CIMB. CIMB however is less concerned as suburban retail supplies, it said, are typically well-planned and distributed across the island.

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An estimated >40% of the retail supplies have also already been pre-committed ahead of completion, including JEM (88%), Westgate (known 14%), Bedok Mall (30%) and orchardgateway (>50%); there are potentially more to come given that several are expected to come onstream only in 4Q13. Taking into consideration the 4.2m sq ft of retail space expected to be added over 2012-5, we estimate that retail space per capita (total population inclusive of non-residents) could rise from 7.1 in 2011 to about 7.5, a level which does not appear excessive when benchmarked against developed Asian countries like Hong Kong, South Korea and Japan.

This is especially so given an expansion in the prospective tenant base with new-to-market brands starting to venture into suburban malls, particularly larger ones in regional centres like Woodlands, Tampines and Jurong East.

Still more positive on suburban retail
Given the supply influx, we believe that performances across suburban malls could be varied near term. We expect well-positioned larger malls near key
transport nodes to outperform those further away. We see rental upside, driven by a shift by more upmarket or new-to-market tenants to suburban malls
(precipitated by increased competition in town after 2009 influx) and successful asset enhancements. For instance, well-patronised malls (such as Causeway Point) have been able to reduce reliance and space taken up by anchor-tenants from 65% pre-AEI to the current 50%. Backed by sustained footfall improvements and healthy occupancy costs (of 15-16% across suburban retail landlords), we expect continued positive rental reversions notwithstanding a flattening of renewal rents. 

Retail additions along Orchard Road have been more moderate since the 2009 supply influx. In 2012, the only addition will come from CMT‟s
Atrium@Orchard (127k sq ft) before orchardgateway (formerly Specialist Shopping Centre) and 268 Orchard Road follow over 2013-4. Competition along
the Orchard Road belt has, however, stiffened since the 2009 influx, which, coupled with moderating tourist arrivals and lower discretionary spending,
could keep rentals in check. To keep up with the competition, more existingmalls such as Wisma Atria, Tangs and The Heeren have embarked on AEIs.
Wisma Atria received good results, achieving full commitments on completion and hitting ROIs that exceed initial projections. Over the longer term, URA has re-launched its underground masterplan for improved connectivity along the Orchard Road but has yet to receive any positive interest, likewise past attempts in 2001 and 2004.