This article first appeared in The Edge Malaysia Weekly on October 30, 2023 - November 5, 2023

AVID mall-goers in the Klang Valley have much to be pleased about. The long-awaited opening of Phase 1 of Pavilion Damansara Heights mall took place on Oct 9 and The Exchange TRX will be launched on Nov 29. These malls are set to provide new shopping experiences but will also add to the already overcrowded retail environment.

Both malls, bearing Kuala Lumpur addresses, will be managed by established mall operators. The former is operated by Tan Sri Desmond Lim Siew Choon’s Pavilion Group and the latter by well-known Australian real estate company Lendlease.

The launches have been a long time coming as both projects had been conceptualised over a decade ago. Pavilion Damansara Heights is a 51%:49% joint venture between the Pavilion Group and the Canada Pension Plan Investment Board while The Exchange TRX is a 60:40 partnership between Lendlease and TRX City Sdn Bhd.

These two malls, which will add 1.8 million sq ft of retail space to the market, come at a time when the retail industry has recovered from the Covid-19 pandemic. That’s the good news given how challenging the retail market is.

Retail experts contacted by The Edge agree that the retail market is indeed challenging and caution that the new openings are likely to result in market cannibalisation.

“Since the start of the year, the local retail sector has been faced with a more challenging environment, from higher electricity tariffs to a tighter labour market, with the labour shortages and increase in the minimum wage. For consumers, the rising cost of living and high inflation continued to persist throughout the year. Coupled with the weakening ringgit, private consumption has naturally declined as purchasing power reduced,” Knight Frank Malaysia executive director of research and consultancy Amy Wong Siew Fong tells The Edge.

Citing the latest Malaysia Retail Industry Report, she points out that retail sales growth for 2023 has been revised downwards to 2.7% from an initial projection of 4.8% after retail sales contracted by 4% in 2Q2023.

ExaStrata Solutions Sdn Bhd CEO and chief real estate consultant Adzman Shah Mohd Ariffin agrees that conditions are tough and that people are “more careful with their spending”. He observes that the weaker ringgit has affected the price of imported rice and other food products and notes that while the implementation of the sales and service tax next year may result in an increase in spending in the last quarter of this year, it may dampen shopping activities in the first quarter of next year.

Retailers, he says, are facing higher operating and purchasing costs while tourist arrival numbers have not improved enough to boost the retail and hospitality segments.

Pavilion Damansara Heights sits on the borders of affluent neighbourhoods Bangsar and Damansara Heights while The Exchange TRX is part of the 70-acre Tun Razak Exchange that is designed to be the country’s next international business and financial district.

Wong observes, “Both projects are integrated developments: Pavilion Damansara Heights comprises nine corporate towers and three blocks of luxury residences while The Exchange TRX comprises six blocks of residences, offices and a hotel.”

The primary catchment for both malls are occupants from offices and residences within the integrated developments. “Given the luxury precinct and brands — which feature more prominently in The Exchange TRX — the two malls seem to be targeting the mid- to upper-income and high-income segments.”

“Both malls also have the advantage of being located within transit-oriented developments (TODs) and along MRT train lines, and thus will be able to draw visitors from areas along the MRT train lines,” she adds. Pavilion Damansara Heights is located on the Sg Buloh-Kajang MRT line whereas The Exchange TRX is an interchange station for the Sg Buloh-Kajang MRT and the Sg Buloh-Putrajaya MRT lines.

Pavilion Damansara Heights is surrounded by mostly smaller neighbourhood malls including Bangsar Shopping Centre, Bangsar Village, Publika, 1 Mont Kiara and 163 Retail Park. Located near the Bukit Bintang shopping district, The Exchange TRX’s competition includes Pavilion Kuala Lumpur, Fahrenheit 88, Lot 10 and Berjaya Times Square.

“Given the high level of competition, there is a risk of market cannibalisation and market dilution, resulting in conventional malls being less viable,” Wong emphasises.

As retail mall space increases faster than population growth, cannibalisation becomes inevitable. Savills Malaysia director for retail services Murli Menon tells The Edge that there are concerns of potential cannibalisation of sales because of the two new malls’ proximity to other malls. The Exchange TRX, he highlights, is in the city centre where the per capita density of shopping malls is already high and where established malls like Suria KLCC and Pavilion Kuala Lumpur enjoy high footfall.

“Prior to the opening of The Exchange TRX, the availability of retail net lettable area (NLA) in malls in the KL city centre stood at 12.3 million sf ft. The opening of The Exchange TRX and the upcoming Warisan Merdeka Mall@118 (in 2024) will add another 2.25 million sq ft. Likewise, the current availability of retail NLA within a 5km radius of Pavilion Damansara Heights is 12.7 million sq ft, including malls such as Mid Valley Megamall, The Gardens Mall and Nu Sentral,” Menon expounds, adding that “cannibalisation in such a situation is a given”.

Adzman anticipates that footfall in existing malls will be reduced. “The two new malls will add an NLA of about 1.8 million sq ft in total, on top of the existing 68 million sq ft (in Kuala Lumpur and Selangor). With a population of nine million, this represents 7.56 sq ft of retail space per capita compared with Singapore’s about 5.8 sq ft per capita.”

Nevertheless, he expects that the loss of footfall in existing malls may only occur in the first few months due to the novelty of having a new mall. “The real test will be seen later on, whether the new malls will be able to sustain the traffic in the medium and long term.”

“Well-located and strong existing mall players in suburban areas have regulars on a permanent basis. The new malls may affect their traffic initially, but it is expected that the malls will rebound in the medium and long term with strong activities and if they carry out retrofitting to enhance their attractiveness,” Adzman adds.

Likewise, Wong anticipates that crowds may temporarily be drawn to the new openings. “Notable existing players such as Suria KLCC, Pavilion Kuala Lumpur and Mid Valley Megamall have cemented themselves within the local retail scene and have consistently performed. Thus, the onus will be on the new malls to build a loyal following of shoppers by curating a distinct tenant mix and offering unique shopping experiences, to be able to draw crowds in the long run.”

At the end of the day, Murli believes it will all be based on customer and shopper preference and convenience. “Neighbourhood malls for regular day-to-day requirements and the larger regional malls for full shopping and dining and entertainment options,” he says, adding that weaker or older malls will need to buck up and revamp their offerings both in terms of tenant mix and services as well as ambience and shopping experience.

On the battle for market share, Wong says, “Considering the size and tenant mix, Pavilion Damansara Heights is likely to compete with the megamalls such as Mid Valley Megamall, The Gardens Mall and 1 Utama Shopping Centre, while also tapping the patrons who frequent the neighbourhood malls in Bangsar and Mont Kiara, with the appeal of a wider retail offering.

“The Exchange TRX’s luxury component and its proximity makes it a competitor for Suria KLCC, Pavilion Kuala Lumpur and, coincidentally, also Mid Valley Megamall and The Gardens Mall,” she adds.

“In terms of market share, both have specific trade areas,” Adzman says. Nevertheless, he observes that given that The Exchange TRX is in the city centre and near highways, it is likely to command a larger catchment whereas Pavilion Damansara Heights is in an established suburban area with traffic congestion issues.

Similarly, Murli says with the level of connectivity and new-to-market F&B and fashion and luxury brands The Exchange TRX is bringing in, it should be able to pull in a wider group of customers.

He adds that as a full-fledged regional mall, Pavilion Damansara Heights’ direct competitors will be Mid Valley Megamall and The Gardens Mall, which have the full range of mid and premium brands as well as a good collection of luxury and premium fashion and accessories brands. “There are also a lot of F&B and dining options within the immediate catchment area, including BSC, Bangsar Village, Republik Damansara Heights, The Five as well as Mont Kiara and Sri Hartamas. The office components within the development, Menara Hong Leong and Menara Milenium as well as the older office buildings around the Damansara area would be a good target for the F&B businesses on weekdays,” he adds.

When a new mall opens, consumers expect staple retail offerings, whether it is a supermarket, a pharmacy or a fast-food joint. But they also look for new brands and experiences.

Pavilion Damansara Heights, which offers 533,361 sq ft of NLA, reportedly has committed tenancy of about 80% for Phase 1, while The Exchange TRX with 1.3 million sq ft of NLA is expected to open with 95% occupancy.

According to Wong, The Exchange TRX will feature several new-to-market foreign brands including Gentle Monster, Maison Kitsune, Alo Toga, Marimekko and beauty brand Drunk Elephant’s first bricks-and-mortar store globally. Pavilion Damansara Heights, meanwhile, features the second Tesla showroom in Malaysia as well as The Food Merchant Prelude with its first grab-and-go concept store.

“[Given] the current level of saturation of shopping malls both in terms of absolute number of malls as well as NLA and per capita NLA, there is not much of a gap left to be filled, especially in the city centre and Damansara,” Murli observes.

“Based on all recent openings and given the fact that Malaysia is still way behind the rest of the region as well as the world in terms of presence of international brands, we can definitely expect a high percentage of duplication of stores as the usual set of staple brands are seen as part of the tenant mix of most malls,” he adds.

According to Murli, based on the mix of confirmed tenants and tenants that have opened at Pavilion Damansara Heights, the tenant overlap with Pavilion KL is at about 35% whereas the overlap with Pavilion Bukit Jalil is about 45%.

Nevertheless, he highlights that The Exchange TRX is the most high-profile and most anticipated mall opening in recent years. Coupled with Lendlease’s marketing clout and international presence, the mall has successfully signed up a number of new-to-market international and regional brands. 

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