Kuok factor in Sabah project

LAST week, The Pacific Parade @ PacifiCity, touted to be Sabah's largest integrated property development went on sale. Formerly known as KK Mega Mall, the project was stalled for several years before it was revived last year.

K.P. Kuok, from the famed Malaysian sugar king Robert Kuok family, is the managing director of Ideal Prestige Sdn Bhd, the developer handling the project. Ideal Prestige is now known as Pacific Sanctuary Holdings Sdn Bhd.

The mall is located on a 25-acre site in Likas and the land-owner is the Sabah Civil Service and Recreational Council.

The main contractor for the Pacific Parade is MCC Overseas (M) Sdn Bhd, a wholly owned subsidiary of MCC Overseas Ltd, an international engineering service company controlled by Metallurgical Corp of China Ltd (MCC), a Fortune 500 company. Hence, the retail “China city” link. It will be MCC's first project in Sabah.

According to reports on Google, the developer of the project under the new shareholder, had entered into an agreement with the MCC Overseas (M) Sdn Bhd to appoint the latter as the turnkey contractor in November 2011.

On various counts, the project is interesting because of the personalities involved. There is the Kuok factor, coupled with the fact that it was a once-stalled project and there were some hundred buyers of the retail lots, in a project located on a site which belongs to the state civil service council.

The project is also interesting from the property perspective. Pacific Parade's website marketed the project as Kota Kinabalu's “biggest shopping attraction” and that it would be an opportunity for investors to purchase the 2,500 “boutique retail units” with just a RM5,000 downpayment.

The smallest unit is 80 sq ft and prices range from RM2,800 to RM3,100 per sq ft for ground floor units, CH Williams, Talhar and Wong reported.

The project comes with a lot of superlatives. It will house Sabah's largest IT centre and largest entertainment and food & beverage centre. It will be Sabah's only wholesale cum retail “China city”.

While the mall is scheduled to be completed early 2014, the 25-acre mixed development project will take about eight years to complete.

CBRE says there are currently 17 malls in Kota Kinabalu, offering a total net lettable area of 4.59 million sq ft, excluding the stand-alone hypermarkets. Nine other retail centres are scheduled to be completed by 2016, although the report says that some are expected to face delays.

CBRE says occupancy rates at most centres are observed to be above 85% since 2008, with the exception of 2009, when two new malls were opened.

“The Kota Kinabalu retail marekt is healthy, especially as we continued to see interest from major domestic and foreign retails,” the CBRE report says.

A report by CH Williams Talhar and Wong says major retail centres have mushroomed in suburban areas in the last five years, which has resulted in crowd dispersal.

Most of the retail units in malls in Kota Kinabalu are sold, says a source, unlike the major malls in the Klang Valley.

“The main drawback to selling the retail units in a shopping mall,” he says, “is that there is little control as to the retail mix, the management and maintenance. Over time, the place may become a little tired and run down. The retail units in Sungei Wang Plaza, one of the earliest malls in Kuala Lumpur, are individually owned.”

The smallest retail unit there is 50 sq ft vs Pacific Parade's 80 sq ft.

Says Allan Soo, the managing director of CB Richard Ellis (Malaysia) Sdn Bhd which markets and manages the PacifiCity project: “We see Pacific Parade having some similar ingredients of Sungei Wang Plaza. We would have an affordable bazaar-style concept for Pacific Parade.”

He adds that there are plans to change the commercial landscape of Kota Kinabalu through Pacific Parade.

Says the CH Williams Talhar & Wong 2012 property market report: “The anticipated increase of retail space may see a more competitive retail sector when the new developments come on stream as scheduled.

“Aside from location and accessibility, design and layout, other intangible' factors such as mall management viz. marketing and promotion, varied trade mix and good tenant retention play significant roles in the success and sustainability of a retail complex. Notwithstanding this, the prime retail property market is holding up well and this situation is expected to continue.”

The fact that most of Kota Kinabalu's retail malls are stratified is an area of concern, another source says. “When retail units are individually owned, owners have little interest in the overall maintenance and upkeep of the public areas and in many instances, they do not invest in refurbishment, which may be needed after several years in order to give the place a fresh look,” he says.

He adds that Sabah has strong tourist arrivals and the upkeep of malls is important, although most of the tourists there are enchanted with the mountains and nature the state has to offer.

Nevertheless, the last couple of years, Kota Kinabalu's residential sector has seen strong support from East Asians, particularly Hong Kong and South Koreans.

“As more foreigners buy into its residential sector, property management and upkeep of retail malls will have to improve,” he says.

It is likely that the retail units in Imago, which is part of phase 2 of the ongoing KK Times Square project by Asian Pac Holdings Bhd, will not be individually sold. KK Times Square is Asian Pac's flagship integrated development in Kota Kinabalu.

As for the buoyant property market there, the source says it is due to Sabahans' higher disposable income, aided by agriculture, oil and gas and tourism revenue. A strong contributing factor is interest from East Asians.

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