REITs have no impact on retail rents: MTI

[CityFarmer]

An interesting study from MTI...

REITs have no impact on retail rents: MTI

SINGAPORE — Real Estate Investment Trusts (REITs) have no impact on retail rents, which are being driven up by the malls’ location and enhancements instead of their ownership.

This is according to a study conducted by the Ministry of Trade and Industry (MTI), following a growing perception that rental prices at retail malls acquired by REITs are rising at a faster rate.

After removing factors such as location and asset enhancement initiatives at malls, “we find that the rents in REIT-owned malls are not statistically different from rents in single-owner malls”, the report said.

“Furthermore, among the malls that are acquired by REITs, we find no evidence to indicate that the rents in these malls increased as a result of the acquisition,” it added.

The study, covering rental data from 35 REIT-owned malls and 76 single-owner malls between 2000 and 2013, followed inquiries over the impact of REITs during the Budget debate in March, when Workers’ Party’s Non-constituency Member of Parliament Yee Jenn Jong said REITs are dominating the retail malls and are in a position to steeply raise rental prices.

“Nonetheless, (rental increase) appears to be largely driven by the better physical characteristics of the REIT-owned malls... like asset enhancements and distance to the nearest MRT station,” the MTI report said, but adding that further analysis will be conducted on whether acquisition by REITs has improved the performance of retailers to justify higher rental prices.
http://www.todayonline.com/singapore/rei...-rents-mti

[opmi]

Have REIT Acquisitions Led to an Increase in Retail Rents?

In recent years, there has been a growing perception that Real Estate Investment Trusts (REITs) are driving up retail rents. Indeed, a casual comparison of retail rents in REIT-owned and other malls may have contributed to this perception, as rental levels and rental growth tend to be higher in REIT-owned malls. However, such a comparison does not take into account the fact that REIT-owned malls tend to have better physical characteristics (e.g., better location) and as such, can command higher rents.

http://www.mti.gov.sg/MTIInsights/Pages/...Rents.aspx

Have REIT Acquisitions Led to an Increase in Retail Rents?

After controlling for the observable characteristics of the malls such as location and the asset enhancement initiatives (AEIs) taken, we find that the rents in REIT-owned malls are not statistically different from rents in single-owner malls. Furthermore, among the malls that are acquired by REITs, we find no evidence to indicate that the rents in these malls increased as a result of the acquisition.

The views expressed in this paper are solely those of the authors and do not necessarily reflect those of the Ministry of Trade and Industry or the Government of Singapore.

http://www.mti.gov.sg/ResearchRoom/SiteA...A_1Q14.pdf