This article first appeared in The Edge Malaysia Weekly on March 13, 2023 - March 19, 2023
INDUSTRY players acknowledge that there is a glut of retail malls in the country, and that the situation is more pronounced in the Klang Valley. However, they contend that it all boils down to specific locations and what each shopping centre has to offer.
“When we stack population growth against available retail space in the market, there certainly is a mismatch between demand and supply. Why this is the case goes back to the ecosystem of townships, where there is always a retail component in every township to attract purchasers,” CBRE | WTW chairman Foo Gee Jen tells The Edge.
Owners-cum-operators of retail malls and real estate investment trusts (REITs) that The Edge spoke to do not deny the oversupply situation, but point out that their retail assets continue to gain traction in terms of footfall and occupancy rates in the reopened economy following more than two years of movement curbs during the Covid-19 pandemic.
“IOI City Mall, which opened in November 2014 with an initial net lettable area of 1.5 million sq ft, now has 2.5 million sq ft following the opening of its second phase last August, making it the largest retail mall in Malaysia. With its occupancy rate of 92%, that’s an indication of recovery,” declares IOI Properties Group head of retail Chris Chong, adding that the group was conservatively optimistic about its retail segment achieving short- and mid-term occupancy targets.
To Tan Choon Siang, CEO of CapitaLand Malaysia REIT Management Sdn Bhd (CMRM), which manages CapitaLand Malaysia Trust (CLMT), the issue of retail mall oversupply is location-specific.
“We do not think there is an oversupply issue in Penang or Pahang, where CLMT owns Gurney Plaza and East Coast Mall respective–ly. These two malls are doing exceptionally well and registered record tenant sales in the quarter ended Dec 31, 2022,” says Tan.
The other assets in CLMT’s portfolio are 3 Damansara, Sungei Wang Plaza and The Mines in the Klang Valley, as well as Valdor Logistics Hub and Queensbay Mall in Penang.
As to whether landlords will raise rents this year for tenants whose three-yearly revision is due, Foo reckons that upward adjustments to pre-pandemic levels, if any, will be minimal.
“Mall owners are facing challenges such as labour shortage and an increase in electricity tariff. Yet, tenants suffered badly during the pandemic as well. There will [have to] be an understanding between the landlord and tenant,” he says.
Whether that means it is now a landlords’ or tenants’ market, Foo is of the view that “successful malls with a history of high occupancy such as Mid Valley Megamall, Suria KLCC, 1 Utama Shopping Centre and Pavilion Kuala Lumpur” will continue to have the upper hand.
Data from the Knight Frank Real Estate Highlights 2022 report shows that top malls in the city centre such as Suria KLCC and Pavilion Kuala Lumpur are able to command average monthly gross rentals of up to RM33 psf and RM26 psf, respectively, compared with the average gross monthly rentals of about RM12 psf and RM13 psf at Mid Valley and The Gardens in the KL city fringe, or RM9 psf and RM4 psf at Sunway Pyramid and The Mines in Selangor.
“These top malls, which have always done well, will continue to benefit from revenge spending. It is still very much a landlords’ market and malls can afford to pick and choose tenants,” CBRE’s Foo says.
A property expert points out that retail space in other KL-based malls is going at a discounted 25% to 30% in rental, while those in Petaling Jaya can go up to 50%.
Datuk Philip Ho, CEO of Pavilion REIT Management Sdn Bhd, the manager of Pavilion REIT, concurs that establishing a tenancy mix adjustment is an ongoing process to ensure sufficient variety and vibrant trading and activity across its malls. Having said that, he notes that following the reopening of borders last April, more foreign retailers have set up in Pavilion Kuala Lumpur.
Hektar REIT, which has six neighbourhood and regional malls in its portfolio, says its shopping malls in secondary cities, where “competition is less stiff”, are faring well with stronger occupancy and positive rental reversions. Its executive director and CEO Johari Shukri Jamil says the trust’s average portfolio occupancy rate was 82%, boosted by its Kulim Central Shopping Centre in Kedah exceeding an occupancy rate of 96% for the financial year ended Dec 31, 2022, post-refurbishment.
“Our [overall] committed/signed occupancy rate was at 83.5% as at Feb 15, 2023, which is already 1.5% higher than the December figures. We are expecting the average portfolio occupancy rate to grow to 84% by the end of the second quarter on the back of queries and negotiations with serious prospects and new tenants,” says Johari.
The REIT is targeting to achieve an average portfolio occupancy rate of 86% by year end.
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