t unspectacular, and there are signs of a slowdown that mirror weakness in the government’s monthly retail numbers. The increasingly important food and beverage services part of the mall tenant mix could be the key to maintaining a cushion while the island’s broader macro problems sort themselves out. And given Singapore’s open economy and exposure to global uncertainties, that may take some time. In the first nine months of the year, CapitaLand reported a range of strong metrics: tenant sales per square foot at its malls increased by 4 per cent year-on-year, higher in the downtown (+6.3 per cent) than in the suburbs (+3.0 per cent). The stronger pace of growth downtown was to be expected given the return of international tourists, who do most of their spending on Orchard Road and other prime retail areas in the city. This is reflected in mall foot traffic, which rose by nearly 16 per cent in the downtown compared with just under 11 per cent in the suburbs. Other company indicators are equally encouraging: retail occupancy is now 99 per cent and rent spreads (put simply, the difference in rent between incoming and outgoing leases) averaged +7.8 per cent. The healthy spreads and rising tenant sales both contributed to an increase of 9.8 per cent in company gross revenue and 6.8 per cent in net property income (NPI) in the first nine months. But the tempo is growing quieter: third quarter gross revenue rose by 4.2 per cent year-on-year, less than half the rate for the whole nine months, while NPI was up only 1.6 per cent. This may be significant because turnover rents, the component of rent based on the ups and downs in tenant sales, account for up to 15 per cent of gross rental revenues: if tenant sales are under pressure, then turnover rent will decline. Occupancy costs for retailers are climbing Occupancy cost ratios for mall tenants — rent plus landlord recoveries for utilities, common area maintenance, security, and so on, divided by sales — are working their way back toward pre-pandemic levels and have gone above 18 per cent of sales in the downtown malls (15 per cent in the suburbs), putting pressure on retailer margins. Even so, they have not yet climbed back to their pre-pandemic level, so they could go higher still. Retail sales look fragile On the top line, retail sales are looking increasingly fragile islandwide. On a year-over-year basis, non-auto retail sales fell by 1.0 per cent in Singapore in October following a slight 0.7 per cent gain in September. Except for watches and jewelry (a favorite purchase category for tourists), and food and alcohol sales at specialty stores, several categories are struggling. Worryingly too, sales growth for food and beverage services — the cafes, food courts, restaurants and other eateries — that have been consistently up in the high-single digits this year suffered something of a deflation in October, rising by only 2.4 per cent. One month does not a year make, so this could well be a temporary blip on the way to a big bang to end the year.  For CapitaLand, accessories lead Despite the bumpiness in Singapore retail sales and unevenness across categories, CapitaLand’s company executives on a recent investor call expressed cautious optimism about the short-term outlook for its malls. Its leading growth categories year to date are shoes and bags, and leisure and entertainment, both up in the double-digit percentages, followed by food and beverage (+6.5 per cent) and education (+6.3 per cent). The worst performer by far was home furnishings (-10.8 per cent), which is a casualty not only of the sluggish broader economy in Singapore but across much of Asia, as squeamish consumers hold off on big-ticket purchases. Stubbornly high inflation (consumer price inflation was 4.7 per cent year-over-year in October) is also a contributing factor. For CapitaLand’s downtown malls particularly, the increase in tourist arrivals is positive: 1.1 million visitors arrived in each of September, October and November, well up from the same months in 2022 but still short of where they were in 2019. Tourism from China is well off the pre-pandemic pace so there is still a lot of upside. The outlook is good, but nothing is immune to failure The Singapore economy, like its retail sector, has nevertheless been slowing. Third-quarter real annual growth was only 0.7 per cent, the third consecutive quarter of growth under one percent. Like all good macroeconomists, the brains trust at Singapore’s central bank have a crystal ball that tells them what will happen six months from now, by which time everyone else will have forgotten what they forecast. In this instance, they say in effect that growth is likely to resume at a brisker pace in the second half of 2024. Regarding the retail property sector specifically, the longer-term outlook is good on both the demand and the supply side. On the demand side, there is an expectation that international arrivals will finally return to pre-pandemic levels in 2024. On the supply side, retail openings planned for the next few years are moderate: about 1.0 million sqft from 2024-26. Much of that is front-loaded into 2024 and half of that is in one mixed-use project, Pasir Ris Mall, which is part of a mixed-use development in the eastern part of the island. Old wine in a new bottle Meanwhile, e-commerce is hardly an issue. E-commerce penetration is still hovering around the 15 per cent mark as a proportion of the island’s retail sales, a level it has pretty much maintained for the past two years. In any event, mall developers like CapitaLand have gradually been able to transition their tenant mix away from categories where they are vulnerable to e-commerce, in particular with the increased amount of space devoted to different kinds of innovative food and beverage, and leisure and entertainment tenants.  Finally, there are lots of special events too, although CapitaLand, like all retail property companies, is masterful at putting old wine in new bottles. It now refers to special events, catchily, as “proactive stakeholder engagements.”