A recent study by the Ministry of Trade and Industry revealed that Real Estate Investment Trusts (REITs) are not driving up retail rents, contrary to the growing perception that the main cause of rising retail rents are retail malls being acquired by REITS.
Covering a total of 35 REIT-owned malls and 76 malls owned by single-owners over the period of year 2000 to 2013, the study indicated that not taking into consideration the observable characteristics of malls such as location and asset enhancement initiatives (AEI), “rents in REIT owned malls are not statistically different from rents in single-owner malls.”
Aside from mall ownership, the study also used key dataset comprising anonymised retail rental transaction data from the Inland Revenue Authority of Singapore (IRAS) or information on the monthly rent, rental commencement date and physical characteristic – including total floor area, type of retail outlet and floor level – of individual retail units, as well as the postal code of the mall in which the unit is located.
“A casual observation of rental trends indicates that REIT-owned malls generally have higher rents than single-owner malls,” it said. “Such casual observations of rental data could have led to the perception that REITs are driving up retail rents.”
“Yet, the observed differences in the rental levels and growth rates of REIT-owned malls and single-owner malls may have been due to systematic differences in the characteristics of the malls, rather than because of the nature of mall ownership,” the MTI report added.
According to the study, these systematic differences include how the two types of mall owners make choices in physical characteristics such as location, and non-physical characteristics like mall profitability, among others.
The study also noted that “among the malls which were acquired by REITs, there is no evidence to suggest that rents increased as a result of the REIT acquisition. In particular, after acquisition, the rents in REIT-owned malls were not statistically different from the rents in malls yet to be acquired by a REIT.” It also added that a future analysis on whether the acquisition of malls by REITS improve the performance of retailers resulting to higher rents.
Source: YAHOO!
