Singapore - Retailers Say Reits Are Pushing Up Rental Costs

Singapore - Retailers Say Reits Are Pushing Up Rental Costs

The Singapore Retailers Association has spoken out against increasing rents on account of REIT involvement.But for retailers, Reits are causing them to cough up more in rents. This is because Reits act mainly to boost returns for their shareholders. The Singapore Retailers Association has spoken out against increasing rents on account of REIT involvement. Real estate investment trusts (Reits) have become an investment darling in Singapore giving investors attractive returns. But for retailers, Reits are causing them to cough up more in rents. This is because Reits act mainly to boost returns for their shareholders. President of the Singapore Retailers Association (SRA), Jannie Chan, says the higher rentals are adding to the woes in the retail sector which include a labour crunch and shortage of parking space. Ms Chan says: “We’ve got the Reits killing us, we’ve got the labour killing us, and we’ve got no shopping (centre) car parks, so where are we going? So I think this is really (the result) of the government policies.” In Singapore, up to 75 percent of a retailer’s costs are fixed costs such as rents and wages. And over the years, the Singapore Retailers Association says rents, as a proportion of fixed costs, have risen relative to wages. SRA says mall landlords like Reit managers raise rents by 5 to 10 percent every three years. Ms Chan says: “(The make up of ) the fixed costs for retailers have shifted from 50 percent rental and 50 percent staff costs to 50 percent rental and 25 percent staff costs. The leases are short-term – it’s renewed every three years. Each time there is a renewal, (the retailer or tenant) has to pay between 5 and 10 percent more.” She adds: “If your business is surviving, or doing well, you could afford that raise. But if not, you would then have to move, which means that the investments you have made over the last three years – the renovation, the staff – you may have to pull out. That becomes quite damaging, especially when you have been there for a long time and (is) there for the long haul within the shopping centre. "So I think the Reits should be more mindful. If you have clients that over a period have been supportive of you, but during a certain period when there’s a downturn in the economy, they could make adjustments and be more reasonable and more compassionate.” Speaking at the World Retail Congress, a retail industry event, which was attended by over 500 retail professionals, Ms Chan suggests that Reits could moderate their shareholders’ expectations of yields. And this can then translate to more reasonable increases in rents.