Onslaught of shopping centres

Experts say there is an oversupply situation in the Klang Valley

With an expected 17 million sq ft of shopping space coming into the Klang Valley from now until 2019, industry experts are concerned that this will result in an oversupply situation.

Khong & Jaafar group managing director Elvin Fernandez says the local retail sector is already “shaking out” with the level of supply at hand.

“Kuala Lumpur already has an average all time high of 7.5 sq ft of retail space per person, more than the average for Singapore and Bangkok. Big shopping centres like Suria KLCC and Pavilion are about 1.2 million sq ft each and 17 million sq ft is a very big number.”

“Yes, it is a clear oversupply situation.”

Malaysian Association for Shopping and High-Rise Complex Management past-president Richard Chan admits that there is a huge supply of malls, however, he says that it is “nothing new.”

“We had a lot of malls in the 80s, there was a recession, but we survived. The same thing in the 90s when new malls came in and we also had a recession, but we still survived!

“The solution is actually simple – if you want to develop a mall, do your research and know your market,” he says.

To help curb the oversupply situation, Elvin says banks need to be more vigilant with lending.

“One of the effective ways to alleviate the oversupply problem is for banks or those who have lent money to the developers of the projects to review the lending.

“This should be done by asking very tough questions to the project proponents – detailed answers should be sought on viability for each of the first 10 years of the project.”

Where necessary, Elvin says that independent market and feasibility studies must also be requested and for continued financing based not only on the initial studies but annual reviews.

Chan concurs that mall operators need to conduct studies before opening for business.

“What is right and not right? Do you have the right tenant mix and the right anchor tenants for that market? What will your customer base be like? You need to position your mall correctly.”

The supply of retail space was estimated by Savills Malaysia Sdn Bhd managing director Allan Soo, during a presentation at the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the private sector, Malaysia (PEPS) seminar last month.

Incoming malls

According to Soo, the incoming retail supply this year are Damansara City Mall, Sunway Velocity Lifestyle Shopping Mall, KL Gateway Retail Podium, MyTOWN Shopping Centre and KL Eco City Retail Podium, Sunway Pyramid Phase 3, Utropolis Marketplace, da:men, AEON Mall Shah Alam, Empire City Mall, The Starling @ Damansara Uptown, EVO Shopping Centre, M Square Shopping Centre, Melawati Mall, Retail @ Pacific Star, GLO Damansara, Selayang Star City, Amerin Mall and Bangi Mall.

Next year will see the introduction of Giant Setapak Mall, Elite Pavilion, Four Season Place Retail Podium, Suria KLCC Extension, TRX Lifestyle Quarter Mall, EkoCheras, Kiara 163 Lifestyle Mall, Tropicana Gardens Mall, CentralPlaza Mall and The Wharf Puchong.

GM Robertson and Kuala Lumpur International Outlet are expected to make their debut in 2018, and 2019, Pavilion Damansara Heights will be opening its doors.

Chan believes 2016 will be a challenging year for the retail sector, adding that there will be “pockets that will continue to do well.”

“The well-known names will continue to do well, as they have built their base already. The ones on the fringe of the city will suffer a bit. These malls will need to work harder and smarter.”

Elvin also says that the more established centres may be less negatively affected, while the newer and smaller centres will face challenges.

‘Kuala Lumpur already has an average all time high of 7.5 sq ft of retail space per person, more than the average for Singapore and Bangkok. Big shopping centres like Suria KLCC and Pavilion are about 1.2 million sq ft each and 17 million sq ft is a very big number.’

“Retail spending is constrained with rising costs while the global and national outlook seems dimmer this year, for a host of reasons. What do you do? Increase the level of management expertise to meet the challenges. How? Horses for courses.”

During PEPS, Soo said he expected more consolidation within the retail sector this year.

“We see rents going south in some of the best malls, with opportunities in good locations. We also see improved sales in better malls, with the weaker ringgit providing an opportunity for tourism and luxury.”

Soo cites Sunway Pyramid, 1Utama Shopping Centre, Mid Valley Megamall, Suria KLCC and Pavilion KL as examples of prime retail malls in the Klang Valley.

Last month, CH Williams Talhar & Wong’s (WTW) managing director Foo Gee Jen said malls in not-so-popular locations would find it difficult to conduct business, adding that malls totalling 2.05 million sq ft of space entered the Klang Valley market last year.

He said, however, that the increasing demand by the young and affluent urban population as well as tourists would help maintain retail malls’ performance within Kuala Lumpur, especially the KLCC and Bukit Bintang areas.

He said strategic planning for these shopping districts and anticipated increase in tourist traffic due to promotional efforts by the Government would help boost the retail sector.

Klang Valley retail sector

According to Rahim & Co’s Property Market Review 2015/2016, the supply for retail space as of the first half of 2015 stood at 28.02 million sq ft with 104 retail buildings compared with 26.4 million sq ft with 102 retail buildings in the first half of 2014.

It said the performance of the retail sector saw an average occupancy of 86.5%, a dip of 0.4% as compared with the first half of 2014.

“Notable newly-refurbished retail establishments in 2015 were Sunway Putra Mall, Maju Junction and KL Festival Mall whilst the newly completed retail establishment are the Ikea Cheras and Ben’s Independent Grocer in Damansara.

“In terms of transactions, The Intermark Mall, a six-storey retail building with 225,014 sq ft of retail space and 367 car park bays, had inked a sale and purchase agreement between The Intermark Sdn Bhd and Pavilion REIT for a consideration of RM160mil cash.”

‘The well-known names will continue to do well, as they have built their base already. The ones on the fringe of the city will suffer a bit. These malls will need to work harder and smarter.’

Meanwhile, WTW’s Property Market Report 2016 said that the constantly growing demand of consumers for modern and sophisticated retail malls had kept the growth of retail sales consistent.

“Malaysia Retailers Association (MRA) reported retail sales growth in the first quarter 2015 as 11.41%, which improved gradually since third quarter 2014. However, retail sales growth was down to 7.17% in second quarter 2015, due to goods and services tax implemented in April 2015.”

It said the Klang Valley retail market was soft in 2015 as consumer sentiment had weakened following the implementation of the goods and services tax in April 2015.

“Cumulative supply of retail space stood at 51.27 million sq ft as of 2015. Two rejuvenated shopping malls, Atria Shopping Gallery at Damansara Jaya and Sunway Putra Mall (formerly known as The Mall) were completed and opened in the first half of 2015, adding 1.01 million sq ft of retail space into the market.

“Atria Shopping Gallery has undergone facelift and has a strong mix of food and beverages and lifestyle tenants, and anchored by Village Grocer supermarket. As for Sunway Putra Mall at Jalan Putra, major tenants in the mall included Cold Storage, TGV Cinema as well as a number of mainstream fashion brands such as Mango, Uniqlo, Brands Outlet and Padini.”

It said that the second half of 2015 was expected to see 1.24 million sq ft more of retail space, of which retail malls that opened was IKEA@Jalan Cochrane, Emerald Avenue at Selayang and Star Avenue Lifestyle Mall, whilst M3 Mall was likely to open its doors by end-2015 or early 2016.

“The Bukit Bintang Plaza, adjacent to the Sungei Wang has officially closed during March 2015, to make way for mixed development, comprising retail podium with duplexes and penthouses on top.”

WTW said the occupancy rate of retail malls had remained strong in the past five years, with occupancy rates, on average, hovering at 90%.

“Completion of seven retail malls has pushed the occupancy rate slightly downward, from 89.3% in 2013 to 89.1% in 2014. The estimated 2.04 million sq ft new retail space in 2015 will further compress the overall occupancy rate to around 87.3% by end of 2015. The average rental rate in prime retail malls remained healthy at between RM24 per sq ft and RM30 per sq ft.” - The Star