OCBC says Singapore online sales boom doesn't spell demise of physical stores

OCBC is of the view that while online sales will continue to grow in Singapore, this does not mean the end of the road for brick-and-mortar stores, with suburban malls outperforming those located elsewhere.

In a commentary on Singapore retail real estate investment trusts (Reits), OCBC credit analyst Seow Zhi Qi noted that online sales picked up and peaked in June this year, with a total value of S$479 million, or 18.7 per cent of total sales.

In 2018, online sales made up 5 per cent of total sales on average. This was up to 5.8 per cent in 2019 and 13.1 per cent for the first nine months this year. The accelerated adoption of online shopping can be attributed to the Covid-19 pandemic, OCBC said.

"Supporting our view that online sales is a leakage from the brick-and-mortar stores, the sales value generated by brick-and-mortar stores had declined to S$42 billion in 2019, from S$43.5 billion in 2018, and was much lower at S$23.6 billion over 9M 2020, though largely due to Covid-19," wrote Ms Seow.

She noted that structural changes are taking place within the retail landscape and that over time, more efficient, reliable and affordable delivery services is expected to enhance the attractiveness of online shopping.

Nonetheless, this does not equate to the end of physical stores in Singapore, the analyst said.

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Among other things, location is the key factor that can help to cushion downside impacts, OCBC said.

Suburban malls for instance, are located within residential neighbourhoods and this catchment provides malls with footfall, so long as the residents in the area are allowed to leave their residences. In addition, these malls provide residents with necessities, which brings about resilience in the performance of the suburban malls, OCBC noted.

Comparatively, malls in the central region do not have a natural catchment area and cater more to local shoppers who have travelled to the mall and tourists.

According to the bank's research, suburban malls have outperformed malls located elsewhere, with a stronger recovery in footfall and tenant sales.

Among the retail Reits under its coverage, OCBC ranked Frasers Centrepoint Trust (FCT) as the most resilient, seeing that it is predominantly a suburban mall Reit. This is followed by CapitaLand Integrated Commercial Trust, which has a mix of suburban malls and malls located in the central region; Mapletree Commercial Trust, which holds VivoCity; and Starhill Global Reit, which has Wisma Atria and Ngee Ann City in Singapore.

CICT was formed recently, through the merger of CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust.

FCT's portfolio includes Causeway Point, Northpoint City, Waterway Point, Changi City Point, YewTee Point, Bedok Point and Anchorpoint. Going by information released by FCT, tenants' sales have recovered close to the pre-Covid-19 level, while footfall has stabilised at 60 per cent to 70 per cent of pre-Covid-19 level.

OCBC added that the bulk of FCT's top 10 tenants are providers of essential services, such as supermarkets as well as food and beverage (F&B) stores.

Location aside, OCBC has seen gradual shifts in tenant mix among the Singapore retail Reits.

Over the last five years, FCT saw its exposure to fashion tenants fall to 13 per cent of gross rental income in Q3 2020, from 21 per cent in Q3 2015, while it recruited more food and beverage (F&B) tenants.

This was similarly observed in CapitaLand Mall Trust's tenant mix, where exposure to fashion fell to 11 per cent from 15 per cent over five years, whereas exposure to F&B rose to 31 per cent, up from 27 per cent.

Overall, OCBC does not see any worrisome concentration risk to any specific tenants or trade sectors among the retail Reits under its coverage at this point, though some are more exposed than others.

It also expects the malls to continue to attract new tenants and to evolve with the times.

That said, it noted that the malls will continue to experience pains in relation to the Covid-19 pandemic. "Non-performing tenants would depart, and malls may have to accept negative rental reversion to bring in new tenants," said OCBC's Ms Seow.