Klang Valley occupancy rate drops as retail space surges.

BY LEE YAN LI
lylee@thestar.com.my

Malaysia’s 56 million sq ft of retail space at more than seven sq ft per person constituted a larger per capita number than Singapore's.

Klang Valley retail space is expected to reach a threshold of 60 million sq ft in 2017, contributing to a drop in average occupancy rate from 90% to 85%, with a possibility to stabilise and recover in 2018.

Savills Malaysia managing director Allan Soo said that the Klang Valley currently has approximately 56 million sq ft of retail space, which at more than seven sq ft per person, represented a larger per capita number than Singapore's.

“By 2017, the retail space will hit 60 million sq ft, meaning there are more than 155 shopping centres and hypermarkets at the Klang Valley,” said Soo at the Savills Malaysia Retail Conference 2016.

The whole Klang Valley is almost built up with shopping centres, which are mostly concentrated in areas that are very close to highways and areas of dense population.

While some malls still have retailers queuing to fill up their retail space, it is increasingly harder to fill up new malls, and the occupancy level drops every time a new mall opens, although it is expected to stabilise and recover when heading towards 2018.

Average occupancy rate.

There are already six megamalls in the Klang Valley, with a probable growth to a total of 10 megamalls. With the increase of retail space, the concerns will be whether there will be any success in the new ones, how it will impact the old ones, and how the retailers can adjust and choose the appropriate spots and compete in this environment.

“The megamalls are still attracting businesses, but there are more megamalls coming up; being big can also mean vulnerability, and some megamalls may not do so well,” said Soo.

However, while the oversupply of retail spaces and shopping malls has been a concern for most, the retailers should also see it as a situation that creates opportunities.

In general, there are around 600 grade A outlets, more than 1,500 grade B and few thousands of grade C outlets, and while the consolidation and shift of status quo would probably happen in this climate, good retailers can benefit from the situation.

In terms of investment, Soo noted that retail rental still presents good options, as for the past 15 years, rental rates have been rising non-stop.

He cited the Kuala Lumpur Convention Centre as an example, in which the average net rent has grown from RM8 to RM9 per sq ft to RM28 per sq ft over the past 18 years.

“There is nothing wrong with shopping centres. It is just that there are too many of them now,” said Soo.

Greater KL retail space will exceed 60 million sq ft by 2017.

The upcoming MRT and LRT lines criss-crossing the Klang Valley will be a game changer for shopping malls and retail outlets. Soo pointed out the Ampang LRT line extension project, which covers the Puchong area, as an example.

Puchong, with a population of 700,000 residents, presents a huge demographic with lots of opportunities, and the line extension could make traffic congestion less of a problem to travel to the city area.

“Puchong has not quite matured in terms of retail and commercial space. There are only two malls there, and the rest are mostly shophouses,” said Soo.

Retailers should grab the opportunities of getting new brands and growing local brands, as Malaysia has not been promoted well to attract more brands into the country.

Malaysia’s retail industry, partly spurred by the rapid demographic growth, has been expanding fast for the past few decades, resulting in more attention given to the expansion of space, rather than merchandising and branding, and the local retail industry is lagging behind other countries in terms of brand growth.

Meanwhile, Soo also noted that the retail sales in Malacca and Johor have seen a 20% increase in sales, due to the influx of Singaporeans who took advantage of the weakened ringgit last year.

To adjust to hard economic times, outlet malls have also seen a boost in sales as the middle-income group sought branded goods at a discounted rate.