Why retail real estate sector is spooked by labour crunch

Rental growth is projected to slow 2%.

According to DBS, the retail real estate sector continues to be underpinned by modestly growing retail sales. With low unemployment and moderating inflation, the sector is expected to continue to hold up.

Rising costs as a result of labour crunch remains a key concern as this could derail expansion plans by retailers in the medium term.

Here's more from DBS:

Hence, we see slower rental growth of c2% pa as retailers manage their major operating cost components, including labour and rental cost. We expect retail landlords that can undertake asset enhancement initiatives to boost property returns to weather this slowdown better.

Current precommitments are high, thus allaying fears of oversupply in the near term. In the longer run, with c10% of total retail stock being developed and completed till 2017, we see a slower rental and capital value trajectory.

Current rental yields of 4.7-5% in the Central area are largely in line with those used by SREITS, hence we expect stable capital values going forward.

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