Suburban retail to outperform central malls in 2025

Tourist downtrading trend and high SGD rates are slowing central malls growth.

Suburban retail in Singapore is poised to outperform central malls in 2025, driven by stronger local demand and a limited supply of retail space, according to research released by DBS.

The report said that suburban retail sales grew by 15% to 20% in 2024, despite a decline in traffic, which is expected to continue in 2025.

The report said suburban malls are benefiting from a peak in outbound travel and spending amongst locals, which are expected to support organic growth. With vacancies below 1% and a limited supply of new retail space, demand is expected to outstrip supply, leading to rental reversions of over 5% for top-performing malls.

In contrast, the report predicts slower growth for central malls, particularly those in tourist-heavy areas like Orchard Road. Whilst these malls experienced a rebound in 2024 due to the return of international visitors, the outlook for 2025 is less optimistic. The report highlights concerns about a downtrend in tourist spending, as well as the persistent strength of the Singapore dollar (SGD), which could impact sales growth. Additionally, tourists are expected to continue downtrading to more affordable retail options, further affecting performance.

Despite these challenges, the overall retail sector is expected to maintain favourable demand-supply dynamics in 2025. Dominant malls, including those owned by CapitaLand Integrated Commercial Trust (CICT), Frasers Centrepoint Trust (FCT), Lendlease REIT (LREIT), and Mapletree Pan Asia Commercial Trust (MPACT), are anticipated to continue commanding occupancy rates of over 99%, with high rental growth expected to follow. Occupancy costs, which are at around 16%-17% in 2024, remain below pre-pandemic levels, providing landlords with room to push for higher rents.

The report also identifies CICT and FCT as top picks in the sector, with attractive forward yields of 5.3% and 6.1%, respectively. The sector’s current price-to-book ratio of 0.85x is considered appealing, especially as a potential turn in interest rates could boost valuations. Analysts suggest that the sector could experience a 15%-20% upside if the price-to-book ratio returns to historical averages.

Although the upcoming Singapore-Johor Bahru Rapid Transit System (RTS), slated for completion in 2026, has been a point of discussion, the report notes that any impact on retail demand is still too early to assess.

Overall, the outlook for suburban retail remains positive, with clearer growth prospects compared to central malls, driven by stronger local spending and a limited supply of retail space.

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