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Commentary: Will COVID-19 spell the end of strata malls?

A makeover is long overdue for many strata malls. But many suffer from a fragmented management structure which disincentivises rejuvenation, say Sing Tien Foo and Lau Li Min.

Commentary: Will COVID-19 spell the end of strata malls?

Composite pictures of strata malls in Singapore. (Photos: Jeremy Long, Calvin Oh and screengrabs from Google Maps)

SINGAPORE: COVID-19 is often thought of as a historic disruption to businesses, but a more accurate characterisation of this pandemic is its role in accelerating trends already underway to separate the goat from the sheep.

Nowhere is this clearer than in retail. Prior to the coronavirus reaching our shores, longstanding department store titans like Metro and Isetan already had plans to wind up outlets in Centrepoint and Westgate respectively.

We are likely to see these great dames of shopping scale down their physical footprint and reconfigure their business model, moving towards an omni-channel strategy. Robinsons and Marks & Spencer, which already have their own websites, now have more virtual storefronts after tie-ups with e-commerce platform Lazada in April.

These follow international trends where consumer spending has been slow to recover despite economies reopening post-lockdown. Retail giants H&M, Zara and Esprit have shuttered stores worldwide.

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The latest victim in Singapore is homegrown sport chain Sportslink, which filed for liquidation and put its flagship stores in Queensway Shopping Centre up for sale in July.

But unlike Real Estate Investment Trusts (REIT) malls flushed with investor cash, strata malls like Queensway Shopping Centre suffer more acutely with the closure of an anchor tenant. These tend to create negative spill-overs to other shops in the mall, many of which are in the same trade and bank on the big boys to pull in crowds.

Queensway Shopping Centre (Photo: Darius Boey)

The good news is retailers in Queensway Shopping Centre and other strata malls, made up of mainly small and medium enterprises (SMEs), have received temporarily reprieve via four-month rental reliefs provided for under the COVID-19 (Temporary Measures) Act passed in Parliament in June.

But with this rental waive having ended in July, the writing may be on the wall. The rising island-wide retail space vacancy rate of 8.0 per cent and 9.6 per cent in the first and second quarters of 2020 respectively may just be the tip of the iceberg.

While retailers in strata shops that own their spaces may not be as financially stressed as rent-paying tenants, they face greater headwinds keeping their businesses going. Many are in traditional trades, like tailoring, F&B, Chinese medicine, while others, particularly the huge concentrations of family businesses, face certain death with the next generation unkeen to take over.

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Competition from REIT malls able to dish out deep discounts has intensified. The relentless march of e-commerce is also not letting up, with the circuit breaker likely to see consumers utilise online shopping for the purchase of regular, essential items including groceries and food delivery.

Retail in general will also come under huge pressure given the poor macroeconomic picture. The circuit breaker has hurt the economy gravely and placed retail under great strain after a two-month closure, where revenues fell to near-zero, but stores continue to incur manpower, storage and other operating costs.

Although the Singapore’s economy has made strides in the transition towards a new normal and expected to have bottomed out, retail will see a winnowing given a dwindling pie. 

Research on consumer expectations by our colleague NUS Assistant Professor Qin Yu suggests individual consumer confidence to spend has been dampened. Consumers will continue tightening their belts amidst this gloomy outlook until a COVID-19 vaccine is found and the virus can be permanently contained.

People wearing masks at Orchard Road, Singapore on Feb 3, 2020. (Photo: Gaya Chandramohan)

An optimistic outlook remains elusive. With a 2020 contraction of 5 to 7 per cent forecasted, the Singapore’s economy has seen its worst quarterly performance on record from April to June shrinking 13.2 per cent year-on-year.

Travel restrictions have also killed the flow of international business travellers and tourist spending, impacting strata malls in the prime shopping belt and places of interest to visitors reliant on foreign dollars, like People’s Park Complex in Chinatown, Mustafa and Orchard Towers.

Shops in Sim Lim Square selling computer accessories, televisions and IT equipment have seen revenues plummet by 40 to 50 per cent, with owners attributing the drop to a lack of tourists and foreign workers who make up 40 per cent of clientele. Facing greater financial pressures, 11 shops there have been put on sale this past month.

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Strata-titled malls may do less well than REIT malls in weathering this historic upending of retail.

Part of this weakness stems from the fragmented ownership structure of strata malls that hampers collective action needed to undertake bold moves to rejuvenate and adopt new shopping concepts.

Strata mall units are individually sold to different owners, who lease them out to small tenants, and are motivated to maximise fixed rents from sub-divided units with little sharing of business risks and upsides.

Screengrab from Google Street View of Golden Mile Tower.

In contrast, revenue models for REIT malls, and those owned by a single company, which already have deeper pockets, tend to adopt a percentage rent model that incentivises efforts to draw crowds and generate footfalls and tie their fortunes to their tenants’ – an advantage in a time of COVID-19.

CapitaLand, the largest landlords of retail malls in Singapore, for example, offered additional support schemes on top of government mandated landlord rental rebates, including a one-month security deposit release, a more generous rental relief package and bulk purchases of sanitisation services and thermal scanners.

Single-owner and REIT malls have a strict tenant selection procedure to bring in a mix of complimentary tenants, whereas strata malls face challenges in attracting large anchor tenants with pulling power, which requires the amalgamation of contiguous, individual units. 

Sub-divided owners also have less of an incentive to turn down undesirable tenants that may fetch a lofty rent but come with negative externalities.

Orchard Towers used to be a bustling mall filled with clothing, jewellery and even had a cinema and a supermarket in the 1970s. 

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Yet the atmosphere has changed drastically after businesses like massage parlours and nightclubs moved in, attracting a less-than-family-friendly group of patrons. These days, people no longer associate Orchard Towers with shopping for fashion and jewellery, and many original businesses have moved out.

Ironically, although the fragmented ownership structure grants owners more discretion to lease out spaces to their preferred tenants, strata malls tend to be stagnant in their tenant mix, and reliant on specific destination-driven consumers, for example clusters of shops selling sportswear in Queensway Shopping Centre.

Yet being located near similar shops may breed healthy competition as businesses keep up with trends. Sim Lim Square moved from selling TV consoles, printers, cameras and IT accessories to laptops and smartphones with the IT boom in the 2000s.

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Beauty World Centre too is seeing a slight change in their tenant mix, as old trades like tailoring and optometry fade and shops pivot to cater to the Korean community, selling Korean food, fashion and dancing academies, which has seen green shoots in attracting younger shoppers.


The management and maintenance of strata malls get less attention, where they come under a management council comprising subsidiary proprietors who serve on a voluntary basis and lack professional expertise in mall management.

Aerial view of Funan by night. (Photo: Gaya Chandramohan)

The result is short-termism. 

With limited budgets where each individual owner has vested interests in keeping sinking fund contributions low, strata malls only have enough muscle to organise piecemeal mall promotions and advertising activities, after routine maintenance, repair works and cyclical upgrading works have been accounted for.

These are a fraction of the major asset enhancement initiatives carried out in REIT malls. The upgrading project at Suntec City Mall and Suntec International Convention and Exhibition Centre in 2011 cost S$410 million in 2011, nearly the price tag of S$500 million Queensway Shopping Centre demanded in an en bloc sale. 

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Many older strata malls, long overdue for a makeover, struggle to compete with newer malls in better locations when accumulated sinking funds cannot cover major refurbishment works. 

The sinking funds in strata malls are used only to cover repair works for common properties, such as water-proofing and the maintenance of public toilets.

Sportslink used to pay S$1.56 per square foot per month for maintenance fees, inclusive of the goods and services tax. Meanwhile, major works, like the one Tampines Mall undertook which involved enhancing the mall façade and replacement of the flooring at the external walkway for a more inviting look cost S$8.2 million in 2018. This translates to about S$23.02 per square foot based on net lettable area.

Tampines Mall, a shopping centre by developer CapitaLand. (Photo: CapitaLand)

REIT malls can undertake such projects without consensus from the majority of owners. REIT managers also have less qualms tearing down old buildings for redevelopment.

CapitaLand Mall Trust had redeveloped the former Funan IT Mall at the cost of S$560 million in 2016 to keep its niche trade mix in electronics and technology while integrating a lifestyle component to attract younger shoppers. 

The mall reopened in June 2019 with a 95 per cent occupancy rate for their retail sector and projected a return of investment of 6.5 per cent in 2016.

The newly revamped Funan stands in contrast to Peninsula Shopping Centre, a strata mall just right at the corner of the street which has largely stayed the same since 1974 when it first opened. It faces difficulties staying competitive, judging from the huge difference in foot traffic between the two despite their proximity.

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The same can be said of strata mall Lucky Plaza, located in a prime spot on Orchard Road. It pales in comparison to next-door Paragon Mall owned and managed by SPH REIT, which spent S$82 million on a makeover and expansion in 2008.

The fact is REIT and single-owner retail malls are usually managed by a professional management team actively involved in developing distinct mall positioning strategies, planning promotional events, and conducting advertising campaigns, with their pay structure tied to the performance of the mall.

Shops at Sim Lim Square remained open for business on Apr 4, 2020. (Photo: Jeremy Long)

The other trouble is most strata malls are not connected to transport hubs and MRT stations. That’s a challenge when a study conducted by the Ministry of Trade and Industry in 2014, show better location and asset enhancement works can allow malls to command higher rents.

It’s no wonder some, like Sim Lim Square, Queensway Shopping Centre and Golden Mile Complex, have resorted to putting themselves up for collective sales yet have failed to attract potential buyers.


History has shown, however, that subdivided unit owners in strata malls can put aside individual interests to take decisions in the collective interest of the mall, including amalgamating contiguous space to snag strong anchor tenants.

Owners and tenants in the King Albert Park Residences Mall have managed to attract entertainment and lifestyle firm EagleWings Group, founded by famed Eagle Eye centre medical director Dr Julian Theng, which set up a cinema, retail shops, healthcare and eateries there.

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Initiatives that improve the mall’s physical layouts and functionality to create refreshing shopping concepts and experiences can enhance their asset value.

Our advice for strata mall owners is to use this COVID-19 pandemic to break out of their current model to focus on the long term by injecting new life into their shopping centres.

They must look beyond maintaining the bare functionality of mall spaces and shift their focus to the business side of their role. They must think about their visitor segment targets to work out anchor tenants and store mix. They should peg their performance to mall foot traffic, store capture rates and store sales conversions.

They should help stores develop relevant marketing strategies. Some retail operators that own substantial space and have major share values in strata malls, like Fairprice Finest in Thomson Plaza and Bukit Timah Plaza, are motivated to work and organise collective action with other smaller retailers to run promotional and marketing campaigns.  

Others like Lucky Plaza allow tenants to utilise atrium spaces to hold events or organise book fairs to gain more footfall.

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Lucky Plaza. (File Photo: Calvin Oh)

However, in malls like Queensway Shopping Centre where the floor layout is cramped and the atrium is not designed for regular promotional events, tenants will rely on regulars for sales, and strata mall owners should help them develop online strategies. Even Soccer store Weston Corp at Queensway Shopping Centre has started embracing e-commerce to boost sales.

Strata mall owners could also take a leaf from CapitaLand, which launched two e-commerce platforms, eCapitaMall and Capita3Eats, to extend marketing reach for their tenants to more than 1 million CapitaStar members in Singapore, or leverage existing e-commerce and social media platforms and aid older tenants with onboarding. 

Bulk sales, cross-selling and joint marketing could be undertaken by tenants on digital platforms. These benefits could be realised by tapping on the Government’s Digital Resilience Bonus, which provides up to S$10,000 in subsidies for qualifying digital solutions.

An ambitious goal might be for strata mall owners to band together in a trade and merchant association. They may be able to tap on government schemes under the Local Enterprise and Association Development umbrella administered by Enterprise Singapore.

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Professor Sing Tien Foo is Director at the Institute of Real Estate and Urban Studies (IREUS) and Head of Department of Real Estate, National University of Singapore. Lau Li Min is Research Assistant at the same institute. The views and opinions expressed herein are those of the authors and do not represent the views and opinions of the National University of Singapore or any of its subsidiaries or affiliates.

Source: CNA/sl


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