Reshaping the future of malls in Asia

Online retailing has changed consumer behaviour. Yet property owners in Singapore have continued to ride on the rise of Asia’s middle class by transforming malls into one-stop lifestyle entertainment centres.

Feb 2020 | 6 min read

Asia has been a key driver of the global economy. The region accounted for 45.0% of global gross domestic product (GDP) in 2019, up from only 29.3% in 2000. This number is expected to rise even further1.

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Alongside rising economic growth, the spending power of Asia’s rising middle class has overtaken those of Europe and North America. Analysts predict that, as urbanisation continues, Asia will likely account for 57% of global middle-class consumption by 2030 (see Fig 1).

Fig 1: Spending by global middle class (PPP, constant 2011 US$ billion and shares)2

Figure 1-contagion

At the same time, online retailing has changed consumer behaviour, posing challenges for many traditional retailers.

Retailer HMV is often seen as an example of how the shift to online shopping has disrupted a brick-and-mortar retailing model. HMV used to dominate high streets and retail centres across the world, selling everything from vinyl through to CDs and DVDs. It has since shut down stores in America, Australia, Canada, Ireland and Singapore and closed its store network in Hong Kong.

Transforming the shopping experience

In contrast to larger countries such as the USA, mall owners in Singapore appear to be more successful in coping with the challenges posed by online retailing.

Some, for example, have collaborated with online shopping portals to allow consumers to collect goods purchased online from nearby shopping centres.

Others have transformed malls into one-stop lifestyle entertainment centres, allowing them to stay relevant even in this era of online retailing.

This goes down well in Singapore where most people tend to live in more modest spaces and prefer to socialise in public spaces. Convenient and well-established public transport systems3 also make shopping centres highly accessible. In other words, high population density and compact urban development bring traffic to retail malls.

Large malls in Singapore now include public libraries, bowling alleys, party rooms, indoor playgrounds, gyms, tuition centres, cinemas – a one-stop lifestyle entertainment centre for locals and tourists. To attract more crowds, mall managers also organise celebrity events and holiday shows.

Retailers are also developing new strategies that enhance the in-store value proposition. These include holding in-store events to drive customer engagement, leveraging on consumers’ desire to try and experience products as well as providing opportunities to speak to experts who can offer reliable information.

The combination of the above factors may explain why online shopping still accounts for a relatively small share of total retail sales in Asia (see Fig 2).

Fig 2: Online shopping as a percentage of total retail sales4

Figure  2-contagion

As such, leasing demand for space in Singapore’s prime shopping malls remains resilient, despite the economic slowdown. According to CBRE Research, in the third quarter of 2019, Singapore’s prime retail spaces continued to attract new-to-market retailers across various industries, including food and beverage, health and fitness, and children’s entertainment.

Prime rental space on Orchard Road – Singapore’s retail hub – saw average rentals maintained at SGD31.70 in the third quarter of 20195. This, together with muted new supply, underpins the resilient outlook for REITs that own central retail space in Singapore.

The world’s most powerful shoppers

The retail market resilience in Singapore is also due to the influx of mainland Chinese tourists – a trend that mall owners cannot afford to ignore.

Shopping drives mainland Chinese tourists’ choice of a travel destination. Among the many reasons, Chinese tourists are seeking to avoid China’s high import taxes on luxury goods and price premiums. The quality assurance of the products bought overseas is also a plus.

According to a survey conducted by Nielsen, mainland Chinese tourists spend an average of USD 762 per person on shopping, more than 1.5x the average spend of non-Chinese6.

Many may not be aware that Singapore is the second most visited destination across Asia Pacific – with visitors largely from mainland China – and ranks first in visitor spending7.

In Singapore, because of the factors mentioned above, it is extremely convenient for mainland Chinese tourists to complete their shopping even within a short stay. With Mandarin commonly spoken in the city-state, this further enhances the shopping experience.

Harnessing the opportunities

Asian mall owners are addressing the challenges from online retailing and embracing new concepts. This has attracted many international brands to expand their retail presence in Asia to explore new business opportunities.

According to global real estate services company CBRE, half of the top-20 target retail markets in 2017 were in Asia Pacific. It is not just the higher-end brands that targeted Asian consumers. In Singapore, 38 international brands, including Don Quijote – a well-known Japanese discount chain store – opened their first shops8. This is testament to the trend of customers looking for “cheap and cheerful” shopping experiences – driving volume sales and mall foot traffic.

All of this can help sustain rental income and growth. Asian REITs present an avenue for investors to take advantage of these trends while potentially taking on less volatility compared to equities.

In the current low-interest environment, the 12-month forward dividend yield of 4.39% on Asian REITs looks particularly attractive (see. Fig 3).

Fig 3: Yields on Asian REITs9

Figure 3-Mall-Yields

Within Asia, Hong Kong and Singapore REITs are offering dividend yields of 5.4% and 4.4% respectively, while their price-to-book ratios are lower than Australia, Japan, and the US (see Fig 4). The disparity in valuations presents opportunities for discerning investors.

Fig 4: Singapore and Hong Kong REITs offer higher yields at lower valuations10


With valuations of REITs largely driven by domestic demand for retail and office space, Asian REITs benefit from the growth in Asia’s economies and consumer spending. This is likely to provide some buffer from global uncertainties that may emerge.

As a cost-effective vehicle for local and international investors to gain diversified exposure to the Asian real estate market, it is no wonder that Asian REITs is one of the fastest growing asset classes over the past 15 years.

Asian REITs have grown to US$393.28 billion (250 REITs) in market capitalisation in January 2020 from just US$24.73 billion (48 REITs) in 200311. The universe and opportunities continue to grow – with many Asian economies still developing, there is a substantial amount of real estate that has yet to be securitised.

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