Malls revitalise amid retail woes

/ The Edge Property |

April 29, 2016 10:00 AM SGT

While taking a packed lift from the basement to the fourth floor of 112 Katong, Michael Leong did not mind when a bunch of giggling teenagers squeezed their way in. It gave him the chance to observe some of the mall’s clientele up close. “We have quite a big expatriate community here,” says the CEO of Keppel Land Retail Consultancy.

Leong led the way to the rooftop water playground, once popular with parents and young children. He intends to turn the space into a 10,000 sq ft F&B area with a soaring double-volume ceiling height and a skylight. “It’s rare to have such an F&B space, and a skylight makes a lot of difference in a shopping mall,” he says.

As the gross floor area (GFA) of 112 Katong has already been maxi mised at 282,000 sq ft, Leong needs to find an alternative way to carve out additional space for his F&B concept. He is considering bringing in a voluntary welfare organisation (VW0) or a non-governmental organisation (NGO) to take up space within the mall.

As these are non-profit setups, they need not pay market retail rents but just a service charge of $1.50 to $2 psf a month, says Leong. In return for the space given up for the NGO or VWO, the URA will allow an equivalent amount of GFA to be used elsewhere within the mall.

A veteran in the retail business, Leong has been involved in the development and management of some of Singapore’s most significant shopping malls — Parkway Parade in the east, which opened in 1984; Jurong Point, still the biggest suburban mall on the island; Nex, the largest sub-regional mall integrated with a transport hub in the northeast; and Marina Square, the only mall connected to three international hotels, namely Marina Mandarin, Mandarin Oriental and Pan Pacific.

112 Katong, located at the junction of East Coast and Joo Chiat Roads, is in the midst of a revamp under Keppel Land Retail

Visual of a proposed F&B space with double-volume ceiling height and a skylight located on the site of the existing rooftop water playground

Tough times According to Leong, the retail sector is facing the toughest time he has seen in his career. However, the 69-year-old has not lost his appetite for learning. “After 30 years in the business, I have to unlearn everything,” he says.

Leong: After 30 years in the business, I have to unlearn everything

He had spent the past 20 years as executive director of Guthrie GTS, and was the CEO of Array Real Estate, a property consultant specialising in retail, in which Keppel Land acquired a 75% stake in December 2014. Leong was appointed CEO of Keppel Land Retail Consultancy in January 2015.

As 112 Katong is Keppel Land Retail’s first project, Leong’s priority is to turn it into “a quality asset”. Keppel Land acquired a 22.4% stake in 112 Katong for $51.4 million in January. It already owned the remaining 77.6% stake through Alpha Asia Macro Trends Fund, which is managed by Alpha Investment Partners, Keppel Land’s property management fund vehicle.

Asia Macro Trends Fund was the biggest stakeholder in the consortium of investors led by Pua Seck Guan, founder and CEO of Perennial Real Estate Holdings, which purchased the former Katong Mall for $274.55 million in 2009.

Another $55 million was spent on enhancing the property and maximising the net lettable area by another 20% to the current 207,000 sq ft, from 172,170 sq ft before. The six-storey mall was repositioned as a premier lifestyle and dining destination called I12 Katong and opened in November 2011. Its anchor tenants are Food Republic, Golden Village cinemas and Marketplace by Jasons.

Refreshing the mall Leong intends to retain the current positioning of 112 Katong as “a premier lifestyle and dining destination”. However, he intends to refresh the place, he says.

Symptomatic of the retail sector as a whole, 112 Katong has seen a series of “Closing Down” or “ Moving Out” sales signs since last year. Nubox, which sells Apple gadgets, shuttered last year. Du-Yi bookstore has closed, while several F&B outlets in the basement as well as restaurants such as TGI Friday’s and Din Tai Fung have also exited.

But new tenants have emerged. Online store Megafash and pop-up stores Naiise and HomesToLife opened at end-2015. HomesToLife has since closed, but is said to be opening a permanent and bigger store in the coming months. Taking up 2,800 sq ft at a prominent space near the entrance is popular dim sum restaurant Tim Ho Wan, which is scheduled to open in mid-May.

HomesToLife that opened as a pop-up store has since closed and will reopen as a larger permanent store

New possibilities Leong sees the possibility of creating a “food loop” of trendy eateries within the mall. He is also toying with the idea of putting up big-screen televisions to screen sports programmes, such as the English Premier League matches. “Watching a game on your own at home is quite different from watching it with like-minded people,” says the Tottenham Hotspur football club fan.

Leong notes that people go to the mall for F&B, education, entertainment and recreation, or the acronym FEER. Therefore, to draw them in, “you need to provide all these experiences”, he says.

As part of 112 Katong’s asset enhancement exercise, he is exploring the possibility of creating a sunken plaza at the entrance. This will allow direct escalator access to the basement level as well as the second level, he explains.

Next door is the upcoming Katong Square, on the site of the former Joo Chiat Police Station. It is being positioned as an F&B destination with 20 restaurants and two hotels under InterContinental Hotel Group — Holiday Inn Express and Hotel Indigo — with a total of 600 rooms.

Further down East Coast Road is the upcoming Katong V, the former Paramount Shopping Centre, which is in the midst of being revamped into a new retail offering by developer Far East Organization. It is part of the Paramount Hotel, which has been relaunched as The Village Hotel Katong.

Leong is unfazed by the competition. “We are exploring the possibility of collaborating with them to promote the East Coast precinct as a whole so that we will all benefit, and this area will come alive,” he says.

The basement level of 112 Katong, where asset enhancement is being undertaken in phases

Best time to revamp For now, Leong is focused on the asset enhancement of 112 Katong and refining its tenant mix. He believes its success lies in staying niche.

“The best time for landlords to revamp or reposition their mall is now, when the market is soft,” says Sulian Tan-Wijaya, executive director of retail at Savills. “It’s the best time for a mall owner to relook the business because there has been a lot of market disruption, not just in the retail sector but across most businesses.”

Last year, the owner of Orchard Gateway at Somerset recognised that some of the fashion brands were floundering. “The landlord was quick to identify the problem and decided to bring in F&B tenants to the first level and the mall is now doing better and enjoying higher rents,” says Tan-Wijaya.

Meanwhile, the neighbouring Orchard Central will see Japanese clothing chain Uniqlo opening its global flagship store in Southeast Asia. The store will occupy over 29,000 sq ft across three levels at Orchard Central.

Tan-Wijaya: The best time for landlords to revamp or reposition their mall is now,
when the market is soft

Casualties mount Nevertheless, casualties in the retail sector have mounted in recent months. Furniture and home accessories stores Iwannagohome — anchor tenants at Great World City and Tanglin Mall for almost a decade — will be closing. American lifestyle retailer Crate & Barrel’s sister store CB2 is also shuttering at Peranakan Place, after making its debut three years ago.

Fashion brands have also been vulnerable, with New Look and Celio closing eight stores and exiting Singapore. “Singaporeans are so well travelled, they are increasingly shopping for their wardrobe and furniture overseas, both online and physically,” says Desmond Sim, head of CBRE Research. “It’s hard for retailers to put a huge premium on a concept that’s available overseas.”

Even traditional household names have not been spared. Metro department store closed at City Square Mall at end-2015. Last month, Dubai- based Al-Futtaim group, which owns Robinsons, announced that it will close at least 10 stores in Singapore as part of a restructuring of its business.

Robinsons, which exited The Centrepoint 3 years ago, opened a 186,000 sq ft space across six levels at The Heeren in prime Orchard Road in November 2013. “It’s a beautiful department store with a wonder ful collection of brands,” says Savills’ Tan- Wijaya. “But some die-hard Robinsons customers still somehow miss the old Robinsons at Centrepoint.”

Looming supply Supply is a concern in the retail sector, say property consultants. This year, about 2.3 million sq ft of retail space is expected to be completed, with another 1.86 million sq ft scheduled for completion next year. Quite a lot of the retail supply is coming up in the CBD, for instance in mixeduse developments such as Marina One, OUE Downtown and Tanjong Pagar Centre. In 2018, another 2.5 million sq ft of retail space will be completed. This includes projects such as Northpoint City in Yishun, Lendlease’s Paya Lebar Central project and Jewel at Changi Airport.

Singapore’s retail rental index has declined for five consecutive quarters. Median rents in the Central area were at the lowest in five years. Likewise, the vacancy rate of 8.3% in 1Q2016 was the highest since 1Q2011, according to URA data.

“Labour constraints and weak retail performance have impacted retail space demand,” says CBRE’s Sim. “This is exacerbated by the impending volume of supply.” Besides staffing issues, e-commerce and supply, the other challenge is the strength of the Singapore dollar. “It [prompts] Singaporeans to shop more outside the country, physically or electronically,” he says.

The strength of the Singapore dollar is also affecting tourist spending, adds Sim. According to Singapore Tourism Board estimates, the number of tourist arrivals in 2015 was up 0.9% to 15.2 million, but overall spending fell 6.8% to $22 billion. This was the first decline in tourist spending since 2009, after the 2008 global financial crisis, and the lowest since 2010’s $18.9 million.

Sim: Labour constraints and weak retail performance have impacted retail space
demand. This is exacerbated by the
impending volume of supply.

Cracks showing Cracks are beginning to show in the retail sector and taking a toll on some business relationships. In March, it was reported that Ngee Ann Development, the landlord of Ngee Ann City, and its anchor tenant, Japanese department store Takashimaya, were locked in a dispute over rent. Their business partnership spans more than two decades, with Takashimaya signing a 20-year lease in 1993.

Meanwhile, on April 14, Perennial Real Estate announced that it had filed applications for three of its associate companies involved in the Capitol project to be wound up by the High Court. The companies, Capitol Investment Holdings, Capitol Retail Management and Capitol Hotel Management, are held jointly by Perennial and Pontiac Land’s Chesham Properties on a 50:50 basis.

According to the SGX statement filed by Perennial, the basis of these applications is that “the shareholders and management of the Capitol entities are in deadlock and their relationship has been adversely affected such that the shareholders cannot realistically continue to work together constructively”.

The companies were formed for the redevelopment of Capitol, which involved retail, a theatre, the upcoming Patina Hotel and the newly built Eden Residences, all of which have received their Temporary Occupation Permits.

Perennial has proposed to either buy the other 50% shareholding in the Capitol project or sell its effective 50% stake to Chesham. Alternatively, both parties could sell all their shares to a third party. Both Perennial and Chesham declined to comment when contacted by The Edge.

The exterior of Capitol project, an integrated development with theatre, retail mall, luxury residences and hotel