Challenging times ahead for shopping malls and local mall retailers…
The emergence of new and upcoming shopping malls in Malaysia, specifically within the Klang Valley, is rather alarming and worrisome indeed. The current mall hype and shopping trend among Malaysians is at an all-time high despite the sluggish economic market, particularly in the retail sector. Amid a record number of malls under development and those about to open, there is still an air of caution and weariness among mall developers as well as operators. Renowned and popular neighbourhood malls such SS2 Mall and Perda City Mall had gone bankrupt due to poor business as well as the lack of shoppers. Others such as Bukit Bintang Plaza have been shut down for redevelopment due to the impending MRT construction. Amidst much fanfare and hype leading to the launch of two major shopping malls (i.e. Melawati Mall by Sime Darby Property, and Empire City Mall by Capital Malls Asia) – whose official openings have been postponed from late 2016 to mid-2017, such prolonged delays have probably caused inadvertent development cost overruns as well as the inevitable escalating cost of living attributed by a stagnating local economy and the ringgit’s slump. An oversupply of retail space, a dwindling market demand for retail shopping, the intense competition among new malls, as well as paradigm shift in consumer trends & perspective have all contributed to the uncertainty in the mall industry.
Weathering challenges and uncertainties
As foretold by industry experts from various retail industries, say that this is one of the most challenging times in history, with it being worse than it was during the Asian financial crisis of 1997/1998, as there is so much more competition now. The iconic Suria KLCC was launched during the crisis period, followed suit by Mid Valley Megamall the following year. It seems the more matured and established mega malls would be able to weather the storm much better, unlike their smaller neighbourhood mall counterparts as well as other newly-launched malls. Major shopping malls such as 1 Utama, Suria KLCC and Mid Valley have always had a more customer-driven or consumer-centric approach to the overall shopping experience. Mall owners and mall operators also need to play an active role in maintaining a healthy and happy relationship with their existing as well as incoming tenants. Hosting festive events, social activities, and other promotional activities tend to attract or draw in big crowds to malls. It is vital to recognize the importance of adding value to malls and improving their tenancy mix. Superficial interior decorations and extravagant structural renovations may add to the “wow factor”, but their effects are short-term and temporary, and they also put a huge strain on the marketing budget of shopping mall management & administration.
Mall development and retail diversity are also positive contributing factors to the success of any shopping mall. Tenancy mix in shopping malls are however becoming more and more similar, hence the offerings are also almost indistinguishable. Newbies or newcomers will have to different themselves from their rivals or competitors in order to survive in the cut-throat mall business, perhaps even create a niche or untapped market that could prove the difference between surviving and thriving in this business. Rental rebates usually offered to retain existing tenants to maintain business continuity in the long run. Rent-free trial periods are also offered for first-time tenants to entice them to join up. It is also not uncommon or unheard of that premier or ‘senior’ (long-time) tenants do in fact receive special privileges as well as preferential treatment from mall operators with respect to rental rates and capital expenditure for their long stay.
Mall traffic and shopping experience
It is a no-brainer that greater mall traffic almost always equates to a positive shopping experience. Occupancy rates for shopping malls in both Kuala Lumpur as well as Selangor have also witnessed significant reductions throughout the years, ever since the onset of the 2008 economic recession. Nevertheless, in current times, the yields which have fallen to between 6% and 8%, and are still considered modest occupancy rates. Whilst rental is normally regarded as the bulk of any mall’s income, mall owners can derive income from other areas such as utility management, service charges, pushcart rentals, carpark services, al-fresco diners, among others. Despite the challenging times, newcomers to the shopping mall scene are still presented with unique opportunities, with prevailing social media and marketing strategies. In running a profitable mall business, prospective mall operators are required to return to the fundamentals by undertaking basic research in terms of shopper demographics as well as consumer requirements.
Modern shopping is not just about purchasing goods alone or leisure activity per se. It is also about comprehensive shopping and retail experience. Shopping malls today are now an evolving culture which takes into account the income, education levels, lifestyle preferences and aspirations of the shoppers. Technology also plays a part, especially in form of social media platforms which can be used to attract shoppers. Data analytics is also a helpful tool for mall managers and retail executives. Another important co-factor is the up-and-coming MRT (mass rapid transit) system, whereby train lines are built and connected to a shopping mall, whereby their net impact on the mall itself increases dramatically as well as exponentially after project completion.
Jumping on the mall bandwagon
With almost everyone especially property developers jumping on the shopping mall bandwagon, the National Property Information Centre (NAPIC) reported a sharp spike in planned retail space from 2012 onwards. The numbers doubled from 1.6 million sq. ft. in 2012 to 3.2 million sq. ft. in 2013 – followed by a tremendous surge in retail space to a whopping 10.23 million sq. ft. in 2014. Due to economic uncertainties, the numbers however dropped by half to merely five million sq. ft. in 2015. With great profitability to be benefitted from being a mall owner, most property developers as well as construction companies have shown keen interest in the shopping mall sector. Among the major real estate developers that already their own shopping malls are: Star Avenue Lifestyle Mall (Mah Sing Group), Publika Shopping Centre (UEM Sunrise), Glo Damansara (Glomac Berhad), Atria Shopping Gallery (OSK Holdings), Evolve Concept Mall (JAKS Resources), Cheras Leisure Mall (PBB Group), 1 Utama Shopping Centre (First Nationwide Group), Empire Shopping Gallery and Empire City Mall (Mammoth Empire Holdings), as well as The Starling (See Hoy Chan). The latest statistical data from National Property Information Centre (NAPIC) revealed that Malaysia had a total of 148.85 million sq. ft. of retail space with another 11.08 million sq. ft. being earmarked or planned, and an additional 16.2 million sq. ft. upcoming soon. Of the total retail space available, a substantial number of malls are concentrated in Greater Klang Valley, with some 241 shopping centres totalling 64.1 million sq. ft. with an average occupancy rate of 80.4% nationwide.
Star attractions of a shopping mall
The main attraction of owning a shopping mall lies in its recurring income, which can compensate for loss of income during economic downturns. Big property players view this as an insignificant source of income from their shopping mall enterprise, as the amount is relatively small compared to their other income earnings or revenue streams. Many of the upcoming integrated developments actually incorporate a shopping mall into their respective project developments. For instance, Eco World Development Group whose joint-venture with Bukit Bintang City Centre (BBCC) is projected to build a lifestyle mall to complement its office towers, serviced residences as well as hotel chains; I-Berhad on the other hand is currently constructing a one million sq. ft. NLA shopping centre as part of its signature Central i-City project; and Tropicana Corporation Berhad’s three premier projects feature their own dedicated or built-in shopping malls. Standalone malls typically serve an entire township population of between 500,000 to a million people, whilst a typical 300k to 500,000 sq. ft. shopping mall is required to serve a retail market population of between 200,000 to 300,000 people. In addition to population size, the average household income for typical Malaysian families of RM5,000 is also regarded as quintessential in maintaining the competitiveness and sustainability of the retail mall industry in Malaysia.
A hazy future for local mall industry
Another pull factor of mall competition is undoubtedly location. Having a mall in a lousy location, or having too many malls in a specific area, might be a bad idea to begin with. If a mall in a designated neighbourhood is not performing well, it is only logical to assume that setting up a mall there is truly undesirable. Of course, property assets such as retail malls can serve as a hedge or a buffer against inflation during poor economic times. The prevailing trend among mall developers is to ‘build-then-sell’ as opposed to ‘build-and-lease’. The continued rising cost of construction has also contributed to the overall cost of building new shopping malls. Whether the mall industry in Malaysia is perceived as booming or not, property investors have often taken a rather cautious and conscientious approach towards mall development, prior to jumping on the shopping bandwagon. The shopping mall business will always be considered “big business” irrespective of the economic condition in the country, as Malaysia has long been regarded as a shopping haven or paradise. Despite prevalent mixed sentiments within the retail property segment, having a business model of development revenue as well as recurring income is sufficiently robust & resilient in putting up a strong challenge amid potential economic stagnation in the ever-competitive mall market. – HFM