GEORGE TOWN: Penang’s retail space glut is expected to worsen over the next five years when new malls and complexes add more than 7.6 million sq ft to the market. Eleven malls will be completed over the next five years.
Savills Malaysia managing director Allan Soo told StarBiz the current retail space per capita is 6.11 sq ft in the state compared with the island’s 9.58 sq ft.
“Anything above 5 sq ft is oversupply. This is due to the preponderance of ill-conceived malls in Penang.
“With about 7.6 million sq ft planned over the next five years, the retail space per capita in Penang doubles from the present 6.11 sq ft, worsening the present oversupply situation,” he said.
Soo said the global share market meltdown and the weakening ringgit would exert pressure on rentals which were agreed upon two years ago.
“This means that in 2016 the rentals in popular malls will experience a lower rate of increase, while for the under-performing malls, rents may drop.
“When the additional supply enters the market in 2019 and 2020, mall rentals will become more competitive. Malls will need to have pull factors such as major difference in price, quality, uniqueness of the tenants and merchandise,” he said.
Penang Institute fellow and head of urban studies Stuart Macdonald said new malls would face challenges in maintaining a sustainable business due to a stagnant population with strained purchasing power.
According to Macdonald, the total fertility rate for Penang in 2013 was 1.5, which is below 2.1, the healthy level for women to have children to replace themselves and their partner.
The 1.5 figure is projected to decline to 1.3 by 2040.
The total fertility rate is an important factor in determining population growth.
“Migration to Penang from other states has also dropped to 12,800 in 2014 from about 14,100 in 2013. People leaving Penang for other states remain unchanged at 11,500 for 2013 and 2014.
“This has resulted in a net migration of 1,300 for 2014, which means that 1,300 stayed back in Penang after taking into consideration the difference between the immigrants and emigrants, compared to the net migration in 2013 which was 2,600.
From 1992-2013, the net migration for Penang was around 9,372 per annum.
“Without strong population growth, it would be hard to imagine how the retail business in Penang could be sustainable,” he said.
Meanwhile, PE Land executive director Joanna Ling said The Design Village (GDV: RM1bil) in Batu Kawan would be positioned as a premium outlet mall with discounted merchandise.
“In fact, globally it has been seen that outlet malls play a significant role in the business model of most fashion brands and even more so when market conditions are sluggish.
“Outlet malls complement conventional malls as long as the criteria of distance and ratio are maintained,” she said.
Ling added that the estimated working class Batu Kawan catchment is projected to be around 250,000 on completion of the various development project planned for the area.
“This is in addition to the immediate catchment of 5.5 million in Penang Island, Kedah, and Perak.
“The Design Village will be the only premium outlet mall in Batu Kawan as the state has granted PE Land exclusivity for this concept of retail,” Ling said.
The 11 shopping malls are Penang Times Square Phase 3 with a net lettable area (NLA) of 230,000 sq ft, City Mall Bayan City (300,000 sq ft), Southbay Plaza (424,000 sq ft), Penang World City (1 million sq ft), Sunshine Tower (2 million sq ft), The Light Waterfront Mall (1 million sq ft), Mall@Southbay City (750,000 sq ft), The Designer Village (400,000 sq ft), Ikea & Ikano Power Centre (NLA not available), and Mall by Belleview Goup (1.5 million sq ft).
Penang Master Builders & Building Material Dealers Association president Datuk Lim Kai Seng said the total construction cost for the malls are expected to exceed RM3bil, of which about 20% or RM600mil would be spent on renovation cost, an important stimulus for the local construction and building material industry.
Raine & Horne International senior partner Michael Geh said these investments complemented the Government’s effort to stimulate the economy, especially in light of the fact the private sector had generally been cautious on spending for new projects.
“Several years ago, there were similar talks of an oversupply of retail space in Kuala Lumpur.
“But until today none of the malls in Kuala Lumpur has closed down due to competition,” Geh said.
The current NLA retail space is 9.076 million sq ft from 20 malls, with rentals for ground floor units at premier malls on the island ranging from RM17 to RM35.12 per sq ft.
Ground floor rental rate in popular suburban malls is RM24.62 per sq ft.