KUALA LUMPUR (Sept 30): Despite various extensions of rental relief, up to half of mall operators reported significant difficulties collecting rents from their tenants in the first half of 2021 (1H21), according to Bank Negara Malaysia (BNM).

This will continue to adversely impact the cash flows of mall owners, particularly for malls in non-prime locations with relatively higher vacancy rates, it added.

In its Financial Stability Review report for 1H21 released on Wednesday, BNM said average rental rates of office and retail space in the Klang Valley had now declined for four consecutive quarters since the third quarter of 2020 (3Q20).

“Occupancy and rental rates of shopping complexes and office space continued to face downward pressure in 1H21. Despite lower incoming supply following some cancellations and deferments of projects, vacancy rates increased across all key states with the completion of several commercial property developments amid persistent weak demand.

“Landlords continued to give rent-free periods, rental concessions and short-term rental assistance packages to attract new tenants and retain existing ones,” it noted.

Looking ahead, BNM said vacancy rates could continue to rise and place further pressure on rents as a result of structural changes brought about by the Covid-19 pandemic, including flexible working arrangements and a shift in consumer spending patterns towards e-commerce.

“The expiry of protections under the Covid-19 Act 2020 that prohibit non-paying commercial property tenants from being evicted from occupied premises could further weigh on occupancy rates. Although this is not expected to significantly increase risks to financial stability given the limited direct bank lending exposure to office and retail commercial property (3.1% of banking system loans) and conservative bank lending practices, broader spillovers to the economy could heighten risks for banks,” the central bank added.