Is retail (still) lingering in the sub-levels?

NAPIC’s 2020 data and insights from Tan Hai Hsin, managing director of Retail Group Malaysia.

NAPIC’s data for 2020 showed that the retail sub-sector was hit with a lesser drop in occupancy than expected from 79.2 per cent in 2019 to 77.5 per cent in 2020. Although the marginal decrease is not reflective of the frightening headlines in the news last year, it could be attributed to the various compensating measures offered by the landlords to sustain their tenants. This could also be the reason why occupancy rates in Klang Valley held up above the national overall, recording 82 per cent in Kuala Lumpur and 80 per cent in Selangor. The same however cannot be said for Johor and Penang with 74.9 per cent and 72.8 per cent respectively.

Managing Director of Retail Group Malaysia Tan Hai Hsin shared that many shopping centres in Klang Valley with relatively low occupancy rates during the Covid-19 period have actually been suffering from the same fate even in 2019 as they struggled to secure tenants due to the serious oversupply of retail space. He opined that should the country recover quickly in the coming one to two years, the lacklustre malls will continue to face the same problem, worsened by the rapid growth of online shopping.

Despite the drop in business and a stuttering construction pace in 2020, NAPIC’s data reported the completion of 13 shopping complexes or close to 0.38 million sqm on the back of 556 buildings (12.61 million sqm) in existing stock. The market also continued seeing 42 other shopping malls (1.81 million sqm) in incoming supply with 12 more (0.51 million sqm) in the planned supply stage.

Return of the shoppers

With bated breath, shopping traffic of major malls in Malaysian cities has finally returned to pre-Covid-19 level since the lifting of the second MCO in 2021 but sales in all retail categories have still some way to go according to Hai Hsin. The rush to return to the malls was mainly caused by the lengthy lockdowns that have stifled Malaysians from their mall visits for their retail therapy, dining, recreational and entertainment activities. But due to the reduced take-home pay, purchasing power has been compromised and as such, Retail Group Malaysia projects a lower growth of 4.1 per cent in the Malaysian retail market for 2021 compared to its earlier projection of 4.9 per cent.

The growth projection took into account the first two months of the Movement Control Order (MCO) in 2021, the foreseeable persisting interstate travel ban, the slower than expected mass vaccination and lower consumer spending than 2019’s level. It is anticipated that the market will only return to 2019’s level sometime in 2024 conservatively or at the earliest 2023, provided the country’s economy can attain high annual growth rates in 2022 and 2023, disclosed Hai Hsin.

Just like the rising footfalls of major malls in KL city centres, he observed that suburban malls in Klang Valley have also enjoyed higher visits compared to the first two months of the year. The latter has in fact enjoyed better patronage because of the high reliance of tourists (about 15-20 per cent) in the city centre malls in Bukit Bintang and the KLCC shopping districts. With border closures and interstate travel ban since MCO 2.0, avid Malaysian shoppers have been prevented from visiting the higher quality malls in Kuala Lumpur that are absent in their hometowns.

Consistent with the rising mall visits, cafes and restaurants have equally been enjoying a good number of dine-in customers but have still some way to go before matching 2019’s performance due to the standard operating procedures on physical distancing. But good news has however finally streamed in from the cineplexes as eager movie fans wasted no time getting back into the theatres from 5 March 2021, the day the curtain raises after the pandemic shuttered their doors. But like the F&B outlets, sales are still sub-2019 level due to physical distancing measures.

Due to very poor performance, is there a strategy that can be adopted so mall owners do not have to resort to closing down?

In the past, very few shopping centres in Malaysia have shut down due to poor occupancy rate. As compared to the United States, we have relatively few abandoned shopping centres in Malaysia.

When shopping centres face low occupancy rates, they tend to lower their rental rates in order to attract non-retail occupants such as offices and schools. Some rented to government agencies, some even leased out their units as storage space.

Suppose the travel borders are shut for the rest of the year to foreign tourists, is domestic consumption sufficient to sustain these malls?

Foreign tourists spending accounts for not more than 10 per cent of the total retail market. Thus, the lack of foreign tourists does not have a significant impact on Malaysia’s retail market.

Will the market witnessed some form of consolidation or mergers & acquisitions on the near horizon?

Consolidation and mergers & acquisitions have started since the first MCO was lifted in May 2020 as we witnessed a high number of closures immediately after. The second round of major closures took place after the bank moratorium ended in October 2020. The third round was during the second MCO in 2021.

Will we see more tenants moving back to the malls or will there be a flight of tenants to the shop lots to sustain business given the cheaper rent?

The retail market will not be stabilised until early next year and after more than a year of consolidation, retailers will only look into expansion in 2022. Nevertheless, some retailers with financial resources will take this current opportunity to expand their businesses with two advantages – cheaper rent and lower costs of renovation. In fact, they have been doing that since the middle of last year. Some tenants, especially the F&B operators may move out of the shopping centres after their leases expire.

During this pandemic, some operators found out that they can generate good business online or via drive-through, take-away and delivery. If they are located at the upper level or tucked in one corner of a shopping centre, their customers or deliverymen will find it hard to access their outlets.

“The worst-hit segments are the entertainment-related outlets (cineplex, video arcade, VR centre, escape room etc), recreational related outlets (children play centre, rock climbing, badminton court, children swim school, theme park etc), bars and nightclubs, shops located in airports and bus terminals, and those that are highly dependent on tourists such as Central Market in Kuala Lumpur and the Singaporean tourists-reliant Johor and Melaka malls. A longer period of recovery is hence needed.”

Business for the factory outlets or outlet malls such as the Mitsui Outlet Park, Johor Premium Outlet, Genting Highlands Premium Outlet, Freeport A’Famosa Outlet (Melaka) and Design Village (Penang) has also been unilaterally affected due to the lack of foreign tourists said Hai Hsin. Nevertheless, they have been surviving with the ardent support of brand-conscious Malaysians scouring for great bargains on branded goods. – Henry Butcher Malaysia

Source: NST