AFTER all this is over, life with its different departments will not be the same again. What we go through is nothing compared with what happened in Wuhan, China, Bergamo, Italy or Spain.
For all intents and purposes, there is no comparison but what is clear is this: there is no such thing as absolute personal liberty, powers nor winners. Mountains and oceans separate us but we belong to this one world.
And nowhere is this more stark than in the relationship between mall operators, owners and tenants with or without the novel coronavirus or Covid-19. A pandemic flattens everything.
Late last week, tenants providing non-essential goods and services in seven Sunway-related malls were given a 14-day rent waiver between March 18 and 30 in line with the government’s movement control order (MCO).
Other mall owners decided to do likewise, namely a neighbourhood mall in Kuala Lumpur whose owner declined to be named, and malls under Pavilion Real Estate Investment Trust.Kota Kinabalu’s IMAGO Mall gave a 50% rental waiver even before the MCO because of a drastic decline in tourists since January, according to Henry Butcher Retail managing director Tan Hai Hsin.
In February, the media reported various retail associations seeking rent rebate of between 30% and 50%.Now that the MCO has been extended to April 14, the same set of mall owners have not decided if the waiver will be extended accordingly.
Mall owners and operators are the big guys with the financial muscle. Tenants, many of them small and medium-sized businesses, are the little guys. But the picture is more complex than that.
Some malls belong to real estate investment trust (Reits) and shareholders expect dividends.
Of sailors and lifeboats
They are all in the same lifeboat, tossed about by a raging sea of uncertainties created by Covid-19.
Kamraj Nayagam, partner at legal firm Mah-Kamariah & Philip Koh raises an old custom of the seas among shipwrecked sailors.
When the provisions run out, they resort to cannibalism. The “custom of the seas” is to draw lots to see who will be the first to go.
However, in all lifeboats, one increases one’s changes of survival by cooperating, up to a certain point. There may come a time when food and water runs out (or there isn’t enough money and goodwill in the system) but if everyone on board works together, the chances of making it to shore or being rescued are improved.
If people don’t work together, the chances of the lifeboat sinking are increased.It has little to do with legal rights, which may vary contract from contract, and more to do with commercial commonsense.
From the mall’s point of view, they may want to keep the tenants and so decide to forgo the rent for up to a certain time, because they would rather have them for the long-term.
From the tenants’ perspective, they don’t want to let go of workers at times like this or reduce their salary.The neighbourhood mall representative says: “We can only hope that this waiver will trickle down to the employees, both foreign and local, full-time and part-time because they all have families, especially the foreign workers.”
And so, with sufficient goodwill, it is possible even for shipwrecked survivors in a frail lifeboat to pull through.
It is to be noted that in almost all cases where the “custom of the seas” was allegedly invoked, it was the cabin boy, that is, the smallest and weakest person in the lifeboat, who drew the short straw. It is also to be noted that the “custom of the seas” is not a defence at law (R V Dudley and Stephens), says Kamraj.
It is to be hoped that everyone in the lifeboats can come through the present crisis, and if not, the government can step in to rescue them, but there is undoubtedly a need for goodwill and cooperation on the part of all, says Kamraj.
Post-crisis retail sector
Retail consultant Allan Soo says it is clear that mall owners want to help tenants. He too raises the question of the government stepping in.
“It is a question of how long they can survive. You have governments helping banks and business during a financial crisis, ” says Soo.
Do the malls have good financial standing, because clearly, this is going to impact yields and this is also a time when prices are marked down. Employee salaries make up roughly a third of rent. Soo crystallises post-crisis in the retail mall sector, whose rental rate, especially for the non-big five was already under pressure due to an oversupply of mall space couple with other factors over the last several years.The top five most popular malls in the Klang Valley are Suria KLCC, KL Pavilion, One Utama, Sunway Pyramid and Mid-Valley Mall.
Soo says there will be concerns about the second wave as exemplified in Wuhan, China, the epicentre of the crisis. “It is not as if Wuhan can return to normal immediately. It may take six months to a year for that, ” says Soo
As with other economic sectors, 2020 will be a struggle for the retail sector.It will be different from previous years crises and landlords’ income will fall with footfall or number of visitors. Post-pandemic, aside from the concerns about a second wave, Soo expects a slow return to normalcy over a six-month period.
“Being able to shop freely or spend the way you used to spend would take time.
“There will be underlying change in habits. People will realise there are things they can do at home, and this too will impact retail sector.
“Mall owners will have to think more about engaging with customers online rather than off line, in an omni-channel kind of approach.
“There will be an increase in intensity about health concerns, and malls operators/owners need to be careful about different ways to approach different surfaces and the provision of hand sanitisers.
“Over the short and medium term, there will be concerns over handrails and lift buttons.
“From now it will not be so carefree anymore, ” Soo says.
Many things were being taken for granted today but going forward, there will be a need to be more careful, he says.
Having said that, the Asian retail sector will be quite strong. Once the vaccine comes, all this is over but there is no room for complacency, he says.
There is a need to look at regional examples, citing Hong Kong and Singapore.
On shifting sands
Henry Butcher Retail managing director Tan Hai Hsin says Resorts World Genting also offered the same incentives to their tenants.At a time when the Malaysian retail sector is already on shifting sands – rent is under pressure, over supply of mall space, low purchasing power – there are several avenues to close the gap in event of a prolonged MCO.
Tan says rental accounts for about one third of retail business expenditure. But landlords have loans to service and their respective expenses, some of which are fixed expenses.
“The worst scenario will be shopping centres shutting down due to financial problems. In the end, all will suffer, ’’ he says.
So it is fair for retailers to ask for a reduction although he does not encourage a blanket drop because some retailers, due to their bargaining power, already enjoying very low rates. Some pay only service charges, without rental, due to earlier negotiations. Some pay rent based on turnover, with no minimum rental rate.
Some pop-up stores and temporary tenants in the shopping centres are already paying minimum rental.
Shopping centres on resort islands are more affected than those in small towns.
“This crisis will lead to the survival of the fittest, ” Tan says.That does not sound good at all.
Mah-Kamariah & Philip Koh partner Kamraj quotes Shakespeare: “‘Humanity must perforce prey on itself, like monsters of the deep’, which simply means if those in the lifeboat do not pull through or get rescued, they turn cannibalistic.”
Dire situation: Shoppers queuing up at the payment counter of a hypermarket. Various retail associations are seeking rent rebate of between 30% and 50%.
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