Contributed by Tan Hai Hsin
On Nov 1, 2017, the federal government of Malaysia imposed a freeze on shopping centre developments throughout the country. The purpose was to curb the distressing issue of the oversupply of retail space.
Based on my professional opinion, the supply and demand of shopping centre space should be left to the market forces with minimum intervention from the government.
When you allow the government to intervene in the future supply of retail space, you are also letting them interfere in other aspects of retail development.
Should the government start controlling where to develop, how to develop, how big it should be, when it should be established and more, then Malaysia would be just like Singapore.
Looking at their current situation, Singapore is still facing the problem of oversupply in retail spaces for the last few years despite the active role played by the government to control the market.
Currently, there are sufficient mechanisms in the market to prevent the oversupply situation from getting worse in the long term. They include bank financing, economic condition, retailer and investor’s support, failure rate and low return.
Many landowners and developers in Malaysia want to develop shopping centres. They spent a significant amount of time and money to plan and publicise the shopping centres. However, their first obstacle will be in getting financing from the banks.
Malaysian banks have been extremely cautious on financing shopping centre projects. As a result, these projects may not get to proceed beyond the drawing board.
Shopping centre managers cannot operate without visitors buying things from the retailers in the shopping centres. Consumption has a direct relationship with the economy. When the economy is weak, people will be cautious in their spending. With the current state of the economy, many investors have been forestalling their investment on new shopping centres.
The lack of sufficient interest from significant retailers also lead to the developers not proceeding with their projects, although a considerable amount of time and money has been spent on planning for the development.
With the existing shopping centres reporting low occupancy rates, this discourages new development in the surrounding area.
The shopping centres that were opened during the last two years were planned more than four years ago, a time when the economy was good. During those times, the prospect of a shopping centre development is promising.
Over the years, the return from a shopping centre investment has dropped from 10% to 8%, then subsequently to 6%. Some even reported a 4% return. The decline in return margins will deter future investors from venturing into shopping centres.
Some shopping centre developers can kick-start their developments by selling retail lots to individual investors to overcome their financing problems. Currently, however, the high failure rate of strata-titled shopping centres in Malaysia will deter many investors from buying retail lots.
About the Contributor
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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