Oversupply? Then Why Are More Malls Being Built?
Despite the dark clouds hanging over the retail mall scene in Malaysia, some bright spots remain in places where the local population is growing significantly, according to Savills (Malaysia) Sdn Bhd deputy executive chairman Allan Soo.
Demographic growth is a catalyst for real estate development and in densely populated and affluent areas in the Klang Valley, the opportunity for commercial development becomes evident once infrastructure like highways and commuter links are built, thereby increasing their accessibility, Soo tells EdgeProp.my.
As such, we still see new malls coming up even though the increase in new mall retail space supply has slowed since 2017.
“In another three years, we can expect to see all the major malls in the city attempting to outdo each other. Would this mean the worst? No. If anything it means more choices and better value for consumers,” he says.
In Greater Kuala Lumpur (comprising KL city and Klang Valley suburbs), the total retail supply increased by 2 million sq ft or 3.1% year-on-year (y-o-y) to 64.3 million sq ft last year, mainly due to the completion of seven new malls.
Savills Research expects retail supply in Greater KL to rise to 69.1 million sq ft in 2019, following the completion of 4.8 million sq ft of lettable retail space this year. This is expected to spike to 78.4 million sq ft in 2022, if all 18 projects presently under construction are completed on time.
Soo believes that specific new retail developments could change the retail mall landscape, including KL city’s The Exchange by Lendlease at Tun Razak Exchange and Mitsui Shopping Park LaLaport KL Mall at Eco World Development Group Bhd’s Bukit Bintang City Centre in Pudu.
“Both are expected to bring new tenants and concepts into the city centre. For instance, with LaLaport, we will see an influx of Japanese brands and concepts. This will create a strong cluster pull effect [on] KL shoppers,” he points out.
Meanwhile, Lendlease has already signed on a cineplex, a department store and supermarket for The Exchange, which is set to be completed this year.
“An industry source has indicated that demand is very strong from international luxury brands. With their superb infrastructure and underground links, the epicentre of retail may well shift again,” Soo adds.
The expected completion of the two Pavilion malls in Bukit Jalil and Damansara Heights in 2021 and 2022 respectively will also heat up the competition against existing large malls, he highlights.
Hence, many old malls are allocating funds for refurbishment and repositioning.
“In the past, capex is allocated for refurbishment, to look fresh. Now it goes deeper. It is conceptual — a change of tenants, back-end connectivity, even big data analytics will ensure that the experience is significant enough for shoppers to return,” Soo says.
Savills Malaysia is currently involved in the repositioning of six malls and two hypermarkets. “We are advising to totally redevelop four of them,” he says.
Reasons that could justify redevelopment are that higher plot ratios may be achieved while high-rise residential or commercial buildings are available nearby to support footfall.
Taking Semua House at Jalan Bunus for example, he says the mall has great potential to be repositioned. “Despite its age, it is still relatively popular as the Masjid India location is a thriving, prime retail area,” he says.
Savills Research’s retail occupancy tracking covers 76 selected malls. Its data shows that the average occupancy rate of retail malls in Greater KL inched up by 0.2% y-o-y to 87.8% in 2018.
With more malls to be completed in 2019, Soo expects the average occupancy rate to drop if they open with low occupancies, which is the norm for new malls.
Meanwhile, the top malls in Greater KL such as Suria KLCC and Pavilion KL continue to enjoy an average occupancy of over 90%. They are still the preferred places for new-to-market tenants to open stores.
“Retail is not all about the number of shops, malls or square feet. Retail is about satisfying consumer needs and wants,” he notes, adding that malls that achieve this will do well despite being surrounded by many other malls in the area.
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