Cloudy outlook for malls

PETALING JAYA (Feb 17): The outlook for the retail sector is expected to remain flattish this year due to multiple negative factors, said Savills (M) Sdn Bhd managing director Allan Soo.

The retail sector performance has been going south since 2013 and with the weakening ringgit reducing margins for most retailers, poorer sentiments, smaller disposable incomes and a double-digit drop in sales turnover last year, 2017 is expected to be more of the same, he told TheEdgeProperty.com.

“The retail industry is consolidating and the impact is that new malls are finding it hard to fill up and A-list tenants are elusive while terms are becoming more in favour of tenants,” Soo said, adding that the market is seeing a reversal in fortunes from the early 90’s when tenants were chasing landlords.

In addition, the rising cost of construction, an uncertain market, the rising oversupply of malls, a dilution in retail sales turnover, intensified competition for tenants, and drop in rents for new malls are dragging down the retail market.

Soo believes yields will compress further, perhaps to below 5% for malls in city centre locations and below 6% for those located in the suburbs.

As such, he urged developers and mall owners to relook at the payback period and internal rate of return for their malls and revise the feasibility studies for proposed malls.

“Developers will now have to consider the first term of tenancy as a build-up, with rents at least 20% to 30% below rack rental values,” he added.

However, now is probably a good time to sell retail properties including malls, Soo said.

“Some funds are eyeing retail malls and we can expect at least one major transaction this year,” he offered.

Soo will be talking more about the “Retail market performance and outlook” at the 10th Malaysian Property Summit 2017 organised by the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia (PEPS) on Feb 23 at Sime Darby Convention Centre, Kuala Lumpur.

Another speaker at the upcoming summit will be Kenanga Investment Bank Bhd head of equity research Sarah Lim, who will provide insights into the “Landed residential market performance and outlook”.

Lim expects the landed residential property market this year to continue facing challenges of a weakened economy and a tight lending environment.

“I don’t think there are any major catalysts for the overall property market, including the landed residential market this year, because the whole market has slowed largely due to our economy going at a slow pace while banking liquidity is tougher to come by,” she said.

She expects the overall property transactions to be relatively flat this year, after declines in the past two years.

“In 2017, I think the market would be quite close to the bottom but I don’t expect it to suddenly turn around and start moving up very fast, so I would say it is going to be flat and slightly weak,” she added.

With the theme “Property as it moves into an era of possible rising global interest rates”, the 10th Malaysian Property Summit will feature other prominent speakers including the Finance Ministry’s Valuation and Property Services Department director general Dr Rahah Ismail, Knight Frank Malaysia Sdn Bhd executive director Teh Young Khean, Landserve (Johor) Sdn Bhd executive director Wee Soon Chit, Khong & Jaafar Sdn Bhd managing director Elvin Fernandez, Rahim & Co International Sdn Bhd research and strategic planning director Sulaiman Akhmady Mohd Saheh and Taylor Hobbs principal consultant Liaw Lam Thye.

For more information on the summit, go to www.peps.org.my.