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(SINGAPORE) Landlords want high rent. Tenants want low rent. But amid the changes induced by real estate investment trusts (Reit) and changing shopping trends, there seems to be one certainty in Singapore's retail sector - rents will go up.

Says Singapore Retailers Association executive director Lau Chuen Wei: 'Any increase in rental is almost a given, especially when more and more shopping centres are coming under the Reit umbrella.'

But as Ms Lau notes, these increase in rents are also part of a larger scheme to revamp the retail sector. She says: 'The revamped shopping mall creates more reasons for shoppers to visit through the right tenant mix and A&P activities to encourage mall visitors to actually shop there.'

Apparently, mall owners and managers do not just sit around and collect rent.

CapitaMall Trust (CMT), the largest owner of retail property in Singapore, certainly does not. It is true that at its successful Junction 8 mall, average rents went up by 48 per cent but this was after a large part of the office building was decanted and new retail space built.

CMT CEO Pua Sek Guan says that actual rental increase for existing tenants was closer to 10-20 per cent but even so most were satisfied with the asset enhancement done. 'If we increase rents by 20 per cent, it is also because we helped increase (the tenant's) sales by 20 per cent,' he says.

There is a base rent on all of the leases that CMT signs with its tenants, but Mr Pua says that all leases also have a built-in percentage of retail sales. This not only allows for negotiation of rents, but more importantly, it lets CMT know if a tenant is making money or not. This percentage might be as little as just one per cent of gross turnover but it gives CMT valuable information.

Mr Pua adds: 'We know the occupancy cost of our tenants so we know which trade can maintain the occupancy cost. If tenant does well, we keep them, if not . . . '

Mr Pua concedes that there are disgruntled tenants but he says tenants can be very 'emotional' and will not move even if they are loss-making. 'One lingerie tenant has an occupancy cost of 80 per cent. There is no way he can make money but he refuses to move,' he says.

If CMT wants your business, it can be quite different. CMT has a rent structure that is based on retail sales. This means that if a tenant thinks the rent is too high, CMT is prepared to 'bet on your sales' for rent. This might be as much as 15 per cent of your sales though.

Competition for prime shop space is the same in other malls. Since the revamp at Wisma Atria was completed in 2004, the mall has attracted over 20 new tenants with about 70 per cent of its existing tenants staying on, even though rents have increased by about 10 per cent on average.

Shopper traffic is another indicator of the success of a mall and Wisma has seen a 20 per cent increase for the first six months of the year - reaching 12 million shoppers - compared with the same period last year. Wisma, together with Ngee Ann City Shopping Centre, was bought over by Macquarie MEAG Prime Reit. A spokesman for the mall manager Macquarie Pacific Star Property Management said: 'Tenant re-mix and tenant mix optimisation are part of our continuous and proactive asset manangement efforts . . . '

Some mall managers expect at least a 10 per cent return on their asset enhancement cost. For Wisma, it should be noted that its revamp was undertaken before the government offered malls on Orchard Road incentives for upgrading.

The owners of Centrepoint - currently undergoing renovations - are luckier in this respect as it has benefited from the incentives. Tong Kok Wing, general manager of investment properties at Frasers Centrepoint, says of its flagship: 'One of the main objectives of any asset enhancement is to upgrade and stay relevant to shoppers. It also helps to create more valuable spaces which will allow retailers to do more business, so we see it as a win-win situation for landlord and tenants. We expect good returns on investment.'

Centrepoint is another mall that will likely be put into a Reit. With little new supply in the near future, rents will no doubt continue to rise. But the health of the economy will determine the strength of the retail sector.

CEO of Orchard Turn Developments Soon Su Lin, who will lead the team at Orchard Road's newest mall, says: 'Based on feedback I have received from international retailers and brands, many do see the potential of setting up new shops in Singapore due to the forecasted increase in visitorship, both in tourists and business travellers to Singapore, as well as the growing affluence and spending power of local residents.' Its rent structure has not been finalised though.

The upswing in the property market has nevertheless given some retailers the jitters. Mavis Seow, director of retail services at CB Richard Ellis, has this to say: 'Any increase in operating cost is a concern and the retail industry is not immune to cost increases. What is important is to weigh these costs against rising sales figures on the back of increased retail spending, strong economic growth as well as efforts to boost retail traffic by both landlords and the government.'