CapitaLand's Tampines Mall could face rental pressures from upcoming Jewel Changi

Jewel’s opening on April could lead to shopper traffic being diverted from other malls in the eastern region.

About 1.1 million sqft of new retail space is expected to be launched this year, with Jewel Changi Airport, the largest mall, contributing about 600,000 sqft. According to RHB Research, the opening of Jewel could pressure rentals for other malls in the eastern region, particularly Capitaland Mall Trust’s (CMT) Tampines Mall, which contributed 12% to 2018 net property income (NPI).

RHB Research analyst Vijay Natarajan commented, “Whilst space at Jewel is nearly fully pre-committed, we expect its opening to result in shopper traffic being diverted from other malls in the eastern region. With CMT’s key asset Tampines Mall being amongst the bigger ones nearby, we expect it to see some pressure in rental reversions ahead.”

Growth in retail demand is also not expected to be sustained for the rest of the year. Natarajan noted that whilst the retail sales index rose 7.6% YoY in January, this could be mainly on one-off factors like pre-Lunar New Year shopping.

Meanwhile, CMT’s revamped Funan Mall and office complex is expected to be open by June with committed occupancy rates for both at around 80%, exceeding RHB Research’s 70% estimate. “We expect average retail rental rates for the mall to be around $12-14psf, whilst the office rates could be $8-10psf,” Natarajan said.

CMT also sold its serviced residences, at a gain of $20.6m in 2017. Management guided that it is still on track to achieve its yield-on-cost of 6.5% for the asset.

After acquiring the remaining 70% stake in November 2018, CMT now owns 100% of Westgate. Management noted that the asset has been performing well after its asset enhancement, and sees room for more upside from the mall, Natarajan added. Other than this, CMT also plans to reposition J-Cube and Lot One shopping malls, which have been recording a “slightly weaker” performance.