Pressure on retail outlets, incoming space may affect tenancy and rates

PETALING JAYA: Incoming supply of retail space into the Malaysian property market this year is expected to create pressure on existing outlets looking to maintain their tenancy and rental rates.

According to property consultant CH Williams Talhar & Wong Sdn Bhd, retail space is expected to increase by 6.4 million sq ft this year. “This is expected to mount significant pressure on existing shopping centres to keep tenants,” it said in its 2014 property market report.

It added that new supply this year would likely see vacancy rates rise compared with the previous year.

“Vacancy has historically hovered around 9% to 11% over the last five years and 2013 has been a stable year for retail centres in the Klang Valley. Average vacancy dropped marginally to 10% from 11.4%,” the report said.

Malaysian Association for Shopping and High-rise Complex Management past president Richard Chan said that despite the incoming supply, there would always be demand for new malls, depending on the location.

“There is always demand, but there is oversupply too. This is because while rents have hit the roof in some places, others are really struggling.”

According to the report, average prime retail rents maintained a steady growth trend with a 10% increase year-on-year in 2013 to RM22 per sq ft compared with RM20 per sq ft in 2012.

“The prospect for retail rents accretion for secondary malls, however, is coming under increasing pressure from an increasing number of incoming retail centres over the coming years.”

It said an analysis of real estate investment trust-owned malls in the Klang Valley revealed that prime shopping malls’ net yields had continued to be compressed to the 4.4% to 6.2% range while gross rents yields ranged between 6.2% and 9.4%.

“The increasing affluence of the urban population and growing middle-income population in the Klang Valley will continue to support domestic spending.

“In contrast, the rising nominal inflation and a burgeoning household debt threatens to weigh down on domestic demand.

“Retail space, especially in lifestyle malls, will become increasingly competitive as numerous new mixed-use developments have incorporated retail centres as key components and many of them are expected to enter the market in the next three to five years,” the report said.