This might be the year of the dragon – a Chinese astrological symbol that is tantamount with power and good fortune – but for Malaysia property developers of new shopping malls in the country, the continuing uncertainty in the global economy and oversupply of retail space might just extinguish their burning business plans.
According to Henry Butcher Retail managing director, Tan Hai Hsin, there are about 10 new shopping malls that are expected to open this year in the Klang Valley alone.
“The total retail space for Klang Valley in 2011 was more than 52 million sq ft. For this year, it is expected to increase by at least 3.5 million sq ft, he tells StarBizWeek.
“This sub-sector is growing, based on the number of new shopping centres that will be completed. However, it will be a challenge to fill up all the retail shops upon opening. It will take them at least a year to do so.”
Tan further said that the growth of this sub-sector is extremely dependent on the spending power of consumer this year.
Khong & Jaafar Sdn Bhd managing director Elvin Fernandez emphasize that the said sub-sector was comparatively strong in 2011 and will probably remain to be strong based on continued and strong consumer spending as well as the support from tourism spending.
“Despite the global turmoil, consumer spending has not slowed down. Oversupply for the retail sector is usually less of a concern because owners or developers usually do a lot of pre-development research and planning before bringing a shopping centre into the market.
“However, it is still important for more information flow through the media to ensure that the numbers hitting the market are known by all – investors, developers, regulators and the general public and this critical flow of information in itself helps to balance supply and demand.”
Elvin says that there are “shadows of looming oversupply” in the next two to five years since more of the bigger property projects under the Economic Transformation Programme (ETP), get under way.
“Lenders and regulators should continuously insist on detailed market and feasibility studies and updates of those studies from time to time and not dispense with them for reasons of cost.
“They must also be perused by the user of the reports and not done just as a matter to satisfy compliance,” he says.
Elvin further stress that in the retail industry, a shopping centre retain its attractiveness by continuous shrewd mall management for a very long period of time.
“Location is important but it is not everything. Mall management is more important. Positioning the mall, (having) the right tenant mix and the myriad of small details count in drawing shoppers in.”
Tan surmise that the success of a shopping mall is not location-specific but more on project-specific.
“For example, Suria KLCC, Mid Valley Megamall, Pavilion KL, Plaza Sungei Wang, Berjaya Times Square, One Utama, Sunway Pyramid and a few more will remain as popular shopping centres in Klang Valley.
“At the same time, shopping centres that have been suffering from low shopping traffic will continue to face challenges in attracting crowds,” he says.
Tan says that there is still a apparent differences between success and failure.
“Popular shopping centres throughout the country continue to attract shoppers and quality tenants despite intense retail competition and weak economy. On the other hand, poorly occupied shopping centres continue to suffer.
“Last year, some shopping centres were giving long rent-free period to their retailers,” he says.
Tan explains that the average rental growth for Klang Valley shopping-centre market ought not to exceed more than 5% this year.
“Average occupancy rate for Klang Valley shopping centres should remain at around 85%,” he says.
Elvin says the continual economic growth will trigger the growth of the retail sector.
“Will the global economy sink further? The European sovereign debt crisis continues and there is sluggish economic growth in the US despite a prolonged period of pump-priming.
“Will China and India slow down, although inflation in both countries is abating, which will allow them to stimulate further their economies.
Elvin further explains that Malaysia having an open economy and export-dependent, it would bring us to a disadvantageous position in the event that the global economy does not recover.
“The economy will have knock-on effects on the property market and may affect consumer spending.
“The authorities are also trying to slow or bring down household debt and this may crimp to an extent consumer spending. On the positive side, the rollout of the ETP projects may add buoyancy to consumer spending and this may also be an election year, which usually results in increased activity and spending.”
Tan concurs that the unsolved eurozone debt crisis, the potential US double dip recession and the latest decline in China export market will have a great impact on Malaysian economy in 2012.
“When export-oriented manufacturing sector slows down by reason of low external demand, it will have an effect on the local employment market. There will be unemployment, no salary increments and no jobs for the graduates. All these will affect retail spending.
“In addition, the uncertain world economy will indirectly lead to Malaysian consumers being cautious in their spending because they are worrying about their future job prospects. They will wait for a sale before they buy. They will look out for value-for-money promotions.”
However, Tan speaks that the 1.2 million public servants who had avail of salary increment and bonus recently will boost consumer spending.
“RM100 cash for the purchase of school books and related items has been given out to each student from standard one to form five in Malaysia. A one-off RM500 has also been given out in phases to families with income of less than RM3,000 per month.
“These will boost retail spending to a certain extent this year.”
According to the Valuation and Property Services Department’s Property Market Report for the first half of 2011, the retail market documented considerably increased take-up space of 258,462 sq meters during the period.
All states with the exclusion of Kelantan recorded positive take-up, with Kuala Lumpur leading the take-up with 54,653 sq meters.
In the said report, it stated that “As at end-June 2011, the country has nearly 2.05 million sq meters of space available for occupation,” the report said.
Meanwhile on the construction front, there were 15 completions in the first half of 2011 with 191,078 sq meters of new retail space entering the market, bringing up the country’s total existing space to 10.78 million sq meters.
The report further reflect that rentals in shopping complexes in most states were usually stable in the first half of 2011.
It said rentals of retail space of shopping complexes in Kuala Lumpur were largely stable with isolated movements recorded in few buildings.
“Suria KLCC obtained premium rentals at RM592 to RM753 per sq meter for its lower ground floor units while retail units in KL Pavilion breached more than RM1,000 per sq meter.
“Bukit Bintang Plaza recorded a double digit increase of 11.5% for its ground floor units but those in the lower ground and second floor recorded slight decreases of 3.6% and 3.0% respectively.”
In Selangor, it was revealed that rentals of retail space in shopping complexes were also stable with increases recorded in selected buildings.
“The Curve saw the rental of its ground and first floor units increased by 12.4% to 36.6% due to rental review, with rentals ranging from RM79.11 per sq meter to RM114.74 per sq meter.
“Rental in AEON Taman Equine recorded gains of 4.5% to 11.8% while AEON Bukit Tinggi in Klang saw higher gains of 7.6% to 40.0% in the review period. However, there were slight declines of 2.8% to 3.6% in the latter for its second floor units,” said the report.