SINGAPORE (July 24): Singapore’s malls are showing some resilience to the global hollowing out of physical retail by online shopping. The demographics of the smartphone generation are still against them, though.

Suburban middle-class shopping centers put up a strong show in CapitaLand Mall Trust’s quarterly earnings Tuesday. Their relative outperformance was an overarching theme in the results of Singapore’s biggest mall landlord, which offer a useful three-monthly check on the retail pulse and shifting consumption patterns in the city-state.

CapitaLand Mall’s tenants saw sales slid 0.9% from a year earlier in the first half, extending a 0.4% decline in the January-March quarter.Yet the real estate investment trust managed a respectable 4%-plus increase in rents on about 150,000 square feet of the roughly 800,000 square feet of retail space where new leases were signed or old ones renewed in the first six months. On one block of 40,000 square feet, the REIT negotiated a 5.6% jump.

What’s remarkable is that the malls where rents rose the most are out on the island’s more industrial western side: Lot One Shoppers’ Mall, IMM Building and Westgate. The landlord’s better-known properties in Singapore’s mainstay shopping and dining districts – Orchard Road, Clarke Quay and Bugis – couldn’t even eke out a 1% increase over rents agreed in previous leases, typically signed three years ago. Rents even fell at Raffles City, an iconic brand that Singapore has exported to Chongqing in China. 

So while retail attractions frequented by Singapore’s well-heeled, tourists and business visitors are languishing, those that cater largely to public housing estates are holding up well.

For how long, though? The US-China trade war is taking a toll on the city’s small, open economy, with GDP shrinking an annualized 3.4% in the second quarter from the previous three months, the steepest decline since 2012. Isetan Singapore Ltd., a Japanese department store operator, has said it won’t be renewing the lease on its money-losing Westgate store this December.

IMM Building is a one-stop heaven of discount outlets. But Generation Z-ers – those born after 2000 – may find it tedious to traipse out to remote shopping centers for a pair of Calvin Klein jeans when better prices are available online. Besides, tenants in the digital economy often don’t require glitzy storefronts. BlueSG, a two-year-old electric-car sharing startup, is fine with some parking space for its vehicles at the Lot One mall. 

What does all this mean for landlords? Interest rates that look likely to stay lower for longer are a bulwark. The 4.5% dividend distribution by CapitaLand Mall provides 250 basis points more than 10-year Singapore government bonds – enough to attract yield-hungry investors. While the REIT’s revenue on a comparable basis improved by just 1.2% in the first half from a year earlier, it souped up profit by compressing operating expenses by 1%. Looking forward, investors will expect returns from Funan Mall, a once-popular haunt for gadget buyers in the city center that recently reopened after a three-year makeover.

But the big payday for Singapore retail property owners, as I have speculated before, may come when the government follows through on its plan to convert more of the central business district’s older office buildings into homes and hotels. Whether the footfall will be enough to offset Generation Z’s retreat from the physical world is the ultimate unknown. That makes it even more imperative for landlords that suburban malls stay busy.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services