Developers will cut, but not slash, rents

Source : Straits Times - 3 Feb 2009

THE head of a developers’ association yesterday urged commercial tenants here not to expect steep rental cuts from their landlords.

Some tenants at retail outlets are asking for cuts of up to 40 per cent amid a spending slump.

But Mr Simon Cheong, president of the Real Estate Developers Association of Singapore (Redas), has asked tenants to be reasonable in their demands.

He was speaking at a Chinese New Year lo-hei lunch held at The Ritz-Carlton Millenia Singapore hotel.

He said many Redas members have already said that they intend to pass on a 40 per cent property tax rebate to their tenants.

This rebate to owners of commercial and industrial properties is part of the Government’s $20.5 billion resilience package unveiled in the Budget.

Mr Chia Ngiang Hong, group general manager of City Developments - which owns malls such as Chinatown Point and Palais Renaissance - said the company will soon decide on how much savings to pass on to their tenants.

‘We only ask that tenants be reasonable,’ said Mr Cheong. Requests for a large sudden reduction in rentals are ‘neither realistic nor sustainable for building owners in the long run’, he said.

Developers say the total savings that will result from the tax rebate are far less than the 40 per cent cuts being sought.

CapitaMall Trust, which has noted a weakening in discretionary spending late last year, has said it is passing on all its $41.5 million tax rebate to tenants, which could translate into a 4 per cent rent cut.

‘The retailers will always ask for more (cuts) but as I have explained, the average portfolio increase (in annual base rent for the past six years) is only 3 per cent,’ CapitaLand president and chief executive Liew Mun Leong told reporters.

‘If you are asking for a 30 to 40 per cent cut…you are not being realistic…It cannot be that you can survive, I cannot survive. It’s not balanced,’ he said.

‘We spent $600 million on the malls in the past six years. Every year, I spend $100 million on improving the malls but the service level is what will generate better sales…The Government must train our service staff,’ he added.

Mr Cheong said that last year had been worse than anticipated. He said Redas understands that retaining jobs is a key objective
of the Budget.

‘Without jobs, not only will our malls be affected but there will also be less income to service loans to buy our houses.’

Frasers Centrepoint chief executive Lim Ee Seng yesterday said that, for a start, the company will pass on all its tax savings to tenants.

There is currently no need for the company to offer any additional rent reductions but it will review the situation should the need arise, he added.

Analysts say landlords are in an awkward position this downturn. Existing tenants have asked for rental rebates to cope with the tough times. Industry sources say tenants signing up to lease space at yet-to-open malls are busy renegotiating their rents. Already, some potential tenants have pulled out of these malls, fearing a lack of business due to the weak economic climate, they add.