Contributed by Tan Hai Hsin
In the past few years, the most significant challenge faced by shopping centres in Malaysia was the severe reduction in consumers’ spending. This is due to the rising cost of living and weak economic conditions.
These factors led to the drops in average occupancy and rental rate, significantly in 2016 and 2017. Even the most famous shopping centres in Malaysia are affected by it.
An oversupply of retail space came in second as the major challenges faced by shopping centre owners in Malaysia, with Klang Valley being the main contributor. However, this problem is usually location specific. For the area such as Klang Valley which has been facing a retail oversupply for the last eight years, the problem is quite prominent. Places such as Klang, Bangi, Kajang, Kepong and Rawang on the other hand, is experiencing the opposite.
In Malaysia, there is an estimated amount of 1,000 shopping centres with 150mil sq ft of retail space. The majority of them are located in Kuala Lumpur, Selangor, Penang and Johor. For the next two years, Johor Bahru and Malacca might be facing an oversupply issue as well, with the completion of several large shopping centres in the cities.
Then again, does nobody visit the shopping malls nowadays?
While it is true that consumers are spending less, they are still visiting the shopping centres, mostly during the weekends. This is especially true for the larger shopping malls. Window shopping is already a lifestyle common to most Malaysian consumers.
Regardless of a family outing, a movie day, free air-conditioning or a one-stop centre for grocery shopping and fashion buying, Malaysians find much comfort in this lifestyle.
Based on my observation, the year 2018 presents a few key challenges for shopping centres in Malaysia.
Some of the points to consider :
(a) Weak consumer spending. Retail spending has not recovered back to pre-GST level.
(b) Rising operational costs. Shopping centre owners are facing higher operational costs (air-conditioning, security, cleaning and staff costs), yet they are not able to increase their rental rates any higher.
(c) Tenants. The current weak market is preventing many national chain retailers from opening shopping centres. Shopping centre owners need to offer monetary incentives (including lower rental, longer rent-free period, subsidised renovation costs and more) to attract reputable tenants to open shops in their shopping centres.
The retail sales performance in 2018 will have a direct impact on the occupancy rate of shopping centre spaces. This is good news for retailers, but not to landlords.
In this case, the retailers are said to have more bargaining power.
A prudent landlord will need to work closely with the tenants, ensuring that they have sufficient sales to survive this economic uncertainty. While a landlord may offer temporary rental incentives for retailers, the latter plays an equally crucial role; getting shoppers to buy.
About the contributors
Mr. Tan Hai Hsin is the managing director of Henry Butcher Retail, a shopping centre consultancy firm in Malaysia. You may contact him at tanhaihsin@yahoo.com.
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