Chart of the day: Will weak tenant sales in Q2 spark further weakness for retail REITs?

The 11.3% visitor arrivals growth isn’t spurring spending.

Most Singapore retailers suffered through low—if not negative—YoY growth in footfall and sales in the second quarter of 2016, but it remains unclear if this is an omen or just a false alarm, according to analysts.

DBS noted in a report that while it is too early to conclude that this could spark further weakness going forward, Orchard Road focused malls may be battered by headwinds given the 11.3% YoY spike in visitor arrivals does not seem to spur spending for malls like Vivocity and Wisma Atria and Paragon.

DPU growths also fell to low single digits in Q2, while occupancy rate managed to hover above 90% though there was greater dispersion between retail malls.

It’s not all bad news, though, as many Singapore retail REITs have been taking advantage of the soft environment as a chance to refresh their offerings by introducing new brands and concepts. Major developments have also kicked off—for instance, asset enhancement initiative works at Northpoint (FCT) commenced in March, and the redevelopment of Funan started in July.

Looking ahead, rental reversions are likely to stay flat to low, as managers aim for tenant retention. DBS noted this is on back of increased vacancy rates across selected malls (especially in Central Singapore) likely providing tenants more bargaining power.