PETALING JAYA: The opening of The Exchange TRX this month is expected to generate more retail space competition in the local real estate investment trust (REIT) sector.
CGS-CIMB Research said The Exchange TRX which is slated to be open to the public tomorrow, is likely to be a direct competitor to Pavilion KL and Suria KLCC, given its location and target market of mid-to-high-end customers.
“The mall will house more than 400 stores; its 1.3 million sq ft of net lettable area (NLA) is largely comparable to Pavilion KL but slightly smaller than Suria KLCC.
“With an NLA of 1.8 million sq ft, Mid Valley Megamall (MVM) still offers the highest NLA among the key retail malls in the Klang Valley, where KL is located,” the research house said in a statement yesterday.
CGS-CIMB Research noted Suria KLCC’s iconic status as part of the KLCC Twin Towers would enable it to be less impacted by the opening of The Exchange TRX than Pavilion KL.
This was also indicated in Suria KLCC’s retail revenue which stayed robust the year after the opening of Pavilion KL in September 2007, posting a growth of 8.2% in FY08 and 13% in FY09.
“We believe the impact on MVM would be similarly less pronounced given its location (more than 10km away from city centre), product offerings and captive market as the mall is strategically located within several mature and affluent residential areas.
“MVM is also well connected to public transportation, including rail and light-rail services,” the research house said.
CGS-CIMB maintained a “neutral” stance on the REIT sector. For exposure to retail REIT, the research house’s top pick is IGB-REIT (target price (TP): RM2.02 a share) which owns MVM and The Gardens.
MVM and The Gardens boast occupancy rates of almost 100% as at September (highest among key KL malls), positive rental reversions, and a strategic location at the city’s fringe surrounded by offices and mid-to-upmarket mature residential areas.
“We have a ‘hold’ call on KLCCP Stapled Group (TP: RM7.47).
“The stock also offers a decent FY24 forecast yield of 5.4%. Overall, the KL REIT Index offers a yield of 5.9%, which is about a 2% spread above the current 10-year MGS yield of 3.85%,” CGS-CIMB Research noted.
Looking ahead, the research house said the prospects for the retail space sector, particularly in KL city centre, would remain challenging in 2024 due to the significant amount of retail space in the Klang Valley by the end of November 2023, coupled with the proposed higher taxes on luxury goods.
While occupancy rates of shopping malls in KL are improving, it is still below pre-pandemic levels.
“Among the city’s shopping venues, iconic malls are performing better than average.
“As at June, the Pavilion KL’s occupancy rate stood at 93.9% (improving from 89.7% in June 22), with only 11% of its tenancy based on NLA scheduled to expire in 2024. KLCC had an even higher occupancy rate of 96% in the first half of 2023,” CGS-CIMB Research said.
The Retail Group Malaysia has lowered its Malaysian annual retail industry growth rate projection for 2023 to 2.7% (from 4.8% previously), due to an unexpected 4% contraction in retail sales for the second quarter of 2023.
“On a positive note, we expect private spending to remain resilient on the back of the country’s positive economic indicators.
“Our house view is for private consumption to stay resilient, with a 6.7% growth in 2023, supported by an easing unemployment rate to 3.3% (versus 3.6% in 2022) and lower inflationary pressure, with consumer price index at 2.8% (versus 3.3% in 2022),” the research house said.
