Too many malls too soon


  • Business
  • Saturday, 09 Jul 2011

The greatest challenge for shopping centres today is not about theme and concept, says Henry Butcher Retail managing director Tan Hai Hsin. Instead, it is about market saturation.

“There are too many retail space chasing the same customers,” he says. Notwithinstanding that, developers continue to plan for shopping centres big and small throughout the country.

“There is in general, an oversupply of retail space throughout the country,” he says. However, a high-density mixed-use development like 1 Mont’Kiara Mall (1MK) is viable in city centres.

“It is viable in locations where there is already a presence of high-rise developments,” he says when asked to comment on malls in general and on 1MK, a neighbourhood mall. 1MK comprises a 20-storey office tower, a 34-storey block of office suites and a five-storey retail mall of 350,000 sq ft. Adjacent to the development are residential suites. Less than 1km away is Plaza Damas in Hartamas .

Tan says malls which comprise different components, as in the case of 1MK, are conceptualised and built this way for a reason.

“Developers need to build more components to justify the investment returns,” he says.

The question is, will the additional components help neighbourhood malls to increase traffic?

Speaking about projects which come with different components and not referring to 1MK specifically, Tan says the success of a mall does not depend solely on support from other components within the same development. If the shopping centre does not offer anything suitable for tenantswho work and live there, it can still fail.

“Office workers and residents may still travel to other areas for food and grocery,” he says.

This year alone, between 50 and 60 new shopping centres are being planned. With this in view, Tan says several scenarios will emerge in the next few years.

“Many planned shopping centre projects will not get to start because the developers could not get bank financing to construct the buildings. Banks are very careful in lending money to developers who want to build shopping centres.

“Second, developers who sell their retail lots in their shopping centres in order to finance their projects will see the shopping centres poorly occupied after opening.

“Third, shopping centre developers who are unable to secure anchor tenants and majority of the retailers for their shopping centres upon opening will witness their projects remain poorly occupied after one year.”

In a radio interview with BFM, Pavilion KL retail chief executive officer Joyce Yap said the retail mix of a mall is important. She said malls that have a third of its space allocated for food and beverage tend to do well.

In the case of 1MK, this is exactly what mall owner Singapore-based ARA Asset Management Ltd has done. Its CEO (ARA private funds) and director (corporate office) Ng Beng Tiong says 40% of its retail space in 1MK has been allocated for food.

Normally, as with other malls, the ratio is about a third or a fourth of its space allocated for food.

Ng says the occupancy rate has been pretty good so far, and today occupancy stands at 70% although it has barely been six months in operation. Ng does not expect the weak US growth and the uncertainties in Europe to have much effect on its plans for 1MK.

“We are looking for mid-market malls, not those in the high-end category, nor those in the lower end category. Mid-end, or those catering to a large middle-class group, tend to be resilient. Secondly, investors from Europe and the US want a bit of exposure here,” he says.

ARA Asset Management is considering buying up to 10 neighbourhood malls in the country. ARA Asset Management is an affiliate of Hong Kong’s Cheung Kong Group, which is controlled by Hong Kong tycoon Li Ka-shing.

CBRE Malaysia executive director Paul Khong also shares his views on malls.

“Neighbourhood malls located within a highly populated area will continue to do well. The Mont’Kiara population is affluent enough. Food and beverage and groceries should do well,” he says.

Khong says in the case of 1MK, although the take-up rate of the mall has been pretty good, it will take time for the mall to enjoy a good traffic flow as Mont’Kiara is not fully occupied.

“Mont’Kiara, in terms of occupancy is at 50% . As more condominiums rise, the average occupancy rate will drop. The population in Mont’Kiara need to further grow for this place to do well,” he says.

Khong says neighbourhood malls are not stand-alone malls, like Suria KLCC or Mid Valley Shopping Centre. Neighbourhood malls are there to cater for the daily need of the community they are located within.

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