Contributed by Tan Hai Hsin
Despite warnings by both government authorities and property consultants on the severe oversupply of retail space in Malaysia, many real estate investors and property owners are still planning to construct and launch new shopping centres throughout the country.
To Read More: 6mil sq ft retail space incoming by end 2018
Malls with the nett floor area from 150,000sq ft to 1.5milsq ft remained as attractive real estate opportunities for property investors and landowners.
These are the few reasons they continue to do so:
(1) To serve immediate and/or new population
When a new township is built, there would be a new residential population who would prefer to have retail facilities nearby. If these shops and services are not available within 15 minutes of driving distance, it has the potential that a shopping centre would be constructed nearby.
(2) Value-added facilities demanded by buyers and investors
Most developers realised that their residential and commercial properties often is more desirable and can be sold at higher prices when there are retail facilities within short walking or driving distance. Thus, developers plan for these facilities to be integrated within the development when they are building their project.
(3) Value and type of land
The mixed-use development, with retail podium located on the ground level and high-rise situated on top, was planned due to the land usage and plot ratio. These commercial land titles are currently being built and scheduled throughout the major cities located outside the city centres and town centres.
Due to their location, there are limited opportunities for high-rise office towers and hotel towers. High-rise residential (or called service apartment, SOHO, SOFO or SOVO) is the most viable option. However, the investment return cannot be justified without the commercial components below due to the high cost of industrial land.
Many of these developments have a one to a three-storey retail podium. Developers will sell the retail lots at the retail podium. Residential buyers are keen on this development format as it will attract tenants who are willing to pay higher rental due to the convenience of retail shops on the lower floors.
As for the retail property investors, the reason that they are keen on these retail lots as it is considered more affordable compared to investing in shop offices.
(4) Investment return
Property investors are still interested in retail properties at the current weak market due to its lucrative returns. Amongst all the property segment, retail properties are found to be able to generate the highest rental rates with the highest capital appreciation provided the properties are proving to be successful when opened.
To ensure that a shopping centre is viable and sustainable, we advice shopping centre developers to study the following carefully:
Population catchment such as size, demographic profiles, household income and purchasing power. They need to consider whether a particular pool of the population is enough to support their shopping centres. Research also needs to be done to know whether these populations have sufficient purchasing power as well as their needs.
Developers would also need to understand the landscape with current and future competition. Which shopping malls are already in the area? How are they doing currently? Which future projects are going to be built nearby? Would there be enough retailers to fill the additional retail space? What is the retail demand gap?
Development size. What is the size of the shopping centre that can be built based on the land area, plot ratio, population purchasing power and retail demand gap?
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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