OREANDA-NEWS. The nine Singapore-listed retail-sector real estate investment trusts (retail SREITs) are likely to remain resilient in 2016, despite the difficult macroeconomic environment, Fitch Ratings says in a new report. This is because of the sector's low leverage, robust interest coverage plus manageable debt and lease contract maturities.

Retail sales in Hong Kong - where the retail SREITs earned 23% of their 2015 revenue - are under the most pressure from slowing economic activity. Hong Kong retail sales fell 6.5% in January 2016 from the previous year. However, most of the sales decrease came from high street shops, whereas retail malls continued performing well because they serve as lifestyle destinations.

Retail sales in Singapore (excluding motor vehicles) increased 1.4% in January 2016 on earlier Lunar New Year spending, after falling for four consecutive months. In comparison, sales in mainland China and Indonesia recorded double-digit growth throughout 2015 and posted gains of 10.2% and 11.7% respectively in January 2016.

Fitch expects Singapore retail sector vacancy rates to rise to 10% in 2016 from 8% at the end of 2015, driven by weak domestic demand and an expected 4% increase in retail space. However, the impact on retail SREIT earnings will be limited to the 20% of the sector's leases coming up for renewal. Fitch expects retail SREITs with higher exposure to the Orchard Road malls and Downtown core areas to fare better, due to stronger demand and limited new supply.