Retail: Still Thriving In Malaysia

Malaysians are resilient. We are not going to let things disrupt our lives so easily

Although the development of the Malaysian economy remains strong, with robust economic integration with ASEAN and now with the signing of the TPPA, the e-commerce market is still lagging well-behind other developed nations in the world. We set out to talk to experts and lay-people of Malaysia to ask them their thoughts on the retail outlook this year.

Allan Soo, the Managing Director of Savills mentioned in a recent seminar that, “Malaysia has been and will have a tough year ahead with strong headwinds. In 2015, Malaysia saw an overall drop of 20% in same store sales across the board, however all online and outlet retails did well. Johor, however was a different story and made an increase in 20%.

A lot of malls have sprouted in 2016, in fact, we have close to 58million sqft of malls. Allan says “When the sales density goes up, so does profit margin. However, we will see rentals go south in even the best of malls. We have already seen rental increase consistently for up to 20 years already. In KLCC, even small shops are already rented out for RM120 psf, and can still go up to RM200 plus psf. Retailers can look for better outlets if they wait for weaker retailers to leave.”

Retail is about demographics. We have a population of 31 million. In KL and Selangor alone the population is 7.7 million. Nowadays the urban population makes up of 74%. No one wants to live in rural areas or farms anymore so that is good for retail.” Then again almost 1.9 million households are in greater KL with almost 7 million vehicles. So the retail space is expected to exceed 60 million sq.ft by end 2017. In 2014, 600,000 cars were sold, and all were bought mostly in Kuala Lumpur. The average age of Malaysians are now 27 to 37 so that is good for household population and residential property.” Added Allan.

In 2014, we witnessed a staggering increase in new supply, which increased by 9% from 2013 but dropped by 5.1% in 2015. Areas like IKEA Cheras, Atria Shopping Gallery and Mitsui Outlet Mall to name the few.

Dato’ Stewart LaBrooy, Executive Chairman AREA Management Sdn Bhd in his presentation at PEP’s had this to say “In the retail segment, we continue to see the larger, integrated malls outperforming their smaller, stand-alone counterparts.”

1H15 Y/Y retails sales showed flat-to-low-single-digit growth for KLCC, Pavilion REIT, CMMT, and Sunway REIT. IGB REIT’s 1H15 retail sales, however, saw stronger high-single-digit growth. Retail Group Malaysia (RGM) has revised down its Malaysia’s retail sales forecast for 2015 from 4.9% to 3.1% (3.4% in 2014) versus its long-term historical mean of 5-6%.

Rental reversions have slowed to 5-10% over three years for KLCC and Pavilion REIT in 2014/15 (vs 10%-13% in 2012/13), and a low-teen rate for Sunway Pyramid mall in 2014/15 (versus a mid-single-digit rate in 2013 and before). IGB REIT’s rental reversions in turn have been relatively stable YTD in 2015 at the historical rate of 15%.

Another sensitive subject that people aren’t really talking about but are thinking, are the DAESH Threats. I talked to Andrin Raj, who is the SEA Regional Director for the International Association for Counterterrorism and Security Professionals-Centre for Security Studies. He had this to say.

 “Malaysians are generally complacent when it comes to ‘just about anything’. A simple example is a fire alarm going off; you will clearly see that no one actually acts upon it.  In the US, it is a law that one has to leave the building when the alarm goes off, even if it’s a ‘false alarm’ as it can be a serious offence under US laws.”