Total retail space expected to grow exponentially in the next 3 years

By IZZAT RATNA / Pic By TMR

The growth of new shopping malls may be outstripping the demand for retail space as retailers struggle to balance with keeping prices down and maintaining a healthy margin on goods.

Total retail space in Malaysia is expected to grow exponentially in the next three years. In the Klang Valley, another 557,418.24 sq m of shopping malls is about to enter the market, adding to the 5.26 million sq m already facing a task to keep tenants.

Retail Group Malaysia (RGM) MD Tan Hai Hsin said many existing shopping centres are suffering from declining occupancy rates and lower rental rates since early 2016, even though some property analysts have disputed that there is a glut.

Property Consulting firm CBRE-WTW noted in its Asia Pacific Real Estate Market Outlook Report 2017 that the completion of several retail malls last year continued to push the occupancy rate slightly down- wards, from 88.5% in 2015 to 87.6% in 2016.

“If there is no more retail glut in the country, we would not experience below-expectation occupancy rates for almost all new shopping centres opened throughout last year,” he said.

He said retailers are realistic in their choice of outlets and will go to where there is demand, and developers of new shopping malls are already reacting to market forces.

“There were no government and industry players’ intervention (to the expected glut). In fact, this is not required as we should just allow the market forces to adjust the demand and supply,” he told The Malaysian Reserve when contacted recently.

Tan, however, said the occupancy demand for retail space is slowly stabilising as land- lords have begun to offer attractive rental packages for tenants to fill their malls.

Knight Frank Malaysia Sdn Bhd revealed in its first half of 2017 (1H17) real estate highlights report that average rents for malls in the Klang Valley were flat during 1H17.

Only selected prime and regional shopping centres, such as Suria KLCC and Mid Valley Megamall, continue to achieve higher average gross rentals (on a per sq m basis) from new tenants and lease renewals.

The monthly gross rental range from RM15 per sq ft (0.09 sqm) to RM25 per 0.09 sq m on average, while less popular suburban and secondary shopping centres, faced with heightened competition and market dilution are expected to see lower rental levels.

Tan said one thing that would help the retail industry would be putting money in the pockets of consumers through incentives and a broad economic improvement.

“When companies have better turnovers, they will give higher salaries and with improved take-home pays, household expenditure will also rise.

“Consumers’ spending is directly linked to economic performance, therefore in order to fix the retail industry, we need to first stimulate the economy as that would benefit all business and industrial sectors,” he said.

Despite the slight uptick in retail sales in the second quarter of 2017 (2Q17), Tan said it was not indicative of an immediate recovery for the retail sector, as the growth has been driven by festive buying and within market expectation.

“We hope the recovery of the retail industry will begin by 2H17. But so far, there has been no sign of the recovery yet.

“The consistent rise in fuel prices until the end of this year and the weaker ringgit will both affect the cost of import and cost of goods, which will lead to further hikes in retail prices.

RGM’s retail sales projection for 2017 remains unchanged at 3.9% as stated in its latest retail sales report.

The retail industry recorded a 4.9% growth rate in retail sales for the 2Q17 against 7.5% previously, surpassing the earlier projection of 4.8% made by members of the Malaysia Retailers Association.

Some big retailers are still feeling the effect of the Goods and Services Tax (GST) which has increased cost of putting goods in shops.

Datuk Abdullah Mohd Yusof, chairman of retail giant AEON Co (M) Bhd, said the GST has created an overlap- ping cost along the supply chain for retailers.

“The GST is the main cause for this disruption as it obscures other related retail taxes — mainly import and export — as well as logistic levies, which has made it easier for smaller scale operators to influence the prices of raw materials.

He said smaller retail chains are more nimble at adjusting prices to attract customers and that big players are being squeezed between keeping a viable profit and competing for business.