Overall occupancy of malls in Kuala Lumpur and the Klang Valley is still high

The retail and office property market is looking stable at the moment despite some softening in certain locations due to the global economic slowdown.

“The overall occupancy of most malls in Kuala Lumpur and the Klang Valley is still high, suggesting the market at this point is still remarkably resilient, compared with markets in other countries in the region,” says real estate agency Regroup Associates managing director Allan Soo.

Based on the average occupancy tracked by the company for the whole of 2008, which includes 43 shopping centres, he says the overall occupancy for all the malls is holding well at 92.7%.

He says that despite the overwhelmingly negative sentiment in the industry, the retail market displayed mixed results last year, with food and beverage and basic necessities like groceries showing positive growth trends, even in the gloom of the second half of 2008.

However, this year, with the global credit crunch affecting the country, Soo says discretionary spending will be curtailed even more. He expects fashion outlets to be the most affected. Even so, he is still optimistic.

“All the hypermarket chains are still expanding and gaining market share, with a few more outlets slated to open this year. Demand is still strong for traders in the convenience, family, household, and food and beverage categories. Our leasing efforts for our two main shopping centres, CITTA in Saujana and Festival City in Setapak, which are still under construction, have drawn positive response from tenants,” he says.

Strategic locations

Naturally, retailers that are already situated in strategic locations would choose to remain there, while those that are not will want to open shop in such areas.

As such, Soo points out that malls like Suria KLCC and Mid Valley Megamall, which are still attracting strong sales, albeit slightly less than last year’s, will continue to maintain full occupancy in the next couple of years.

Sunway Pyramid Sdn Bhd marketing and leasing general manager Kevin Tan Gar Peng says there is a misconception that malls are performing dismally due to the downturn.

“Every day, we are reading news that say shopping malls are facing gloomy days. Actually, it is not that bad. Sunway Pyramid is doing well and retailers are enjoying good sales,” he says.

The sales during Christmas last year and Chinese New Year this year had in fact fared much better than in 2007.

“We are very optimistic. Our target market is medium to high-end shoppers, who are less affected by the downturn,” he says, adding that for the past six years, Sunway Pyramid has been enjoying full occupancy with an average rental rate of about RM9 per sq ft.

“We are very selective with our tenants. Some retailers may move out due to poor sales, but it may be because their products don’t suit the market and not because the market is bad,” he explains.

Sunway Pyramid has raised its marketing budget by 30% this year to woo more shoppers. And apart from seasonal sales, it will have promotions for certain departments every month.



Oversupply situation?

Kuala Lumpur Pavilion Sdn Bhd leasing and marketing director Joyce Yap says Pavilion’s occupancy rate is 100% and, as tenants have signed a three-year leasing arrangement, it is not likely to change in the near term. Yap says that in this challenging time, malls need to do more promotions to attract shoppers and boost sales.

Hall Chadwick Asia Sdn Bhd chairman Kumar Tharmalingam says the domestic office rental rates will hold as KL is not a financial centre like Singapore.

“International banks (in Malaysia) are smaller and I don’t think they will retrench workers, while the local banks are not in trouble. In the last seven years, not many new office buildings have been erected. During that period, there was only one new building in the golden triangle, Menara Bumiputra-Commerce in Jalan Raja Laut, but businesses have expanded,” he says.

He opines that the office market outside the KLCC vicinity, such as Petaling Jaya and Damansara Heights, are also stable.

On a report that an additional eight million sq ft of office space will hit the KL market in three years, he says developers are more likely to defer the projects, which means there will unlikely be a scenario of oversupply.

On average, he says, the take-up rate for new tenancy office space in KL is about 1.5 million sq ft per year. Among all the segments of the commercial property market, he says the office rental market is the most stable at this point.

Old tenants, new tenants

Regroup Associates Sdn Bhd executive director Paul Khong says the office market is still fairly strong, as renewal of existing leases are on the rise. However, he says new tenants may resist paying premium rates, or commit to new spaces, until economic conditions improve.

As such, he expects office rental yields for buildings in secondary locations, or newly-completed office space that are struggling to draw tenants, to taper off by 5%-15%.

“Unless they see a bargain, they won’t be willing to part with their cash yet. There may be one or two desperate sellers, but it should not bring down the entire market substantially,” he says.

“As part of cost-cutting measures for back-end offices or data centres, there could be demand for office space from multinational corporations looking to relocate from more expensive countries like Singapore or Hong Kong to Malaysia,” he says, adding that the general occupancy rates for grade A offices are above 90% and about 40% of the new supply of office space coming in are already pre-let.

By The Star (by Edy Sarif And K.C.Law)