KUALA LUMPUR: Did you know that Perda City Mall in Bukit Mertajam Penang suddenly shut down after just 18 months in business? Apparently, they only gave tenants a day’s notice in writing and no explanation, according to The Edge Malaysia.

In its cover story entitled ‘Crunch Time for Malls’ for the week of Aug 8-Aug 14, it also noted that the massive 2.3 million sq ft net lettable area (NLA) Empire city Mall in Damansara Perdana, Selangor, had announced last year it would delay its opening from end-2015 to next month. 

More recently, Sime Darby Property Bhd and CapitaLand Malls Asia’s joint venture – the RM670 million Melati Mall in Kuala Lumpur also postponed its opening from the year’s end to 2Q2017. The delay was due to “design planning and current headwinds” in the economy.

The weekly’s writer Chua Sue-Ann wrote that the shopping mall business has come under pressure due to a confluence of factors, like oversupply of retail space, lower tourist arrivals, weakness in domestic retail spend, lacklustre consumer sentiment, intense competition for tenants, and changing consumer preferences and behaviour.

Retail consultants said they cannot remember a more challenging time for shopping malls in Malaysia. Like Savills Malaysia managing director Allan Soo. Not even the 1997/98 financial crisis impact dragged on as long as it did now.

“After 1998, things were back up pretty fast,” he told the weekly. Some malls even opened almost immediately after the crisis, including Suria KLCC (opened in May 1998) and Mid Valley Megamall (November 1999). “This time is the toughest. There are more variables, more competition and real oversupply issues. It’s going to be much harder work,” he said.

At the same time, Malaysia’s retail industry saw a 4.4% year-on-year contraction in sales in 1Q2016, compared with a 4.6% growth a year earlier that was buoyed by pre-goods and services tax buying, according to data from the Retail Group Malaysia. 

Meanwhile, data from National Property Information Centre shows Malaysia, as at end-2015, had 148.85 million sq ft of existing retail space, with another 16.2 million sq ft incoming, and a further 11.08 million sq ft being planned. In Klang Valley alone, i.e. Kuala Lumpur, Selangor and Putrajaya, there was 241 shopping centres with 64.1 million sq ft of space, with average occupancy of 80.4%, in the same period, according to Henry Butcher Malaysia Sdn Bhd.

The saturation is mostly in Klang Valley’s Damansara, including 1 Utama Shopping Centre, Glo Damansara and Atria Shopping Gallery. A few more is opening in the coming months to next year, such as Empire City Mall, the Starling and Damansara City Mall.

According to Henry Butcher Malaysia’s data, occupancy and average rental rates for Kuala Lumpur and Selangor malls somewhat suffered last year. Average monthly rental rates, excluding the anchor tenants’, fell 7.2% to RM13.03 psf to RM12.09 psf in Kuala Lumpur, though it held steady at RM10.12 in Selangor.

Average occupancy for Kuala Lumpur malls fell to 82% from 83.2% in 2014 while Selangor malls saw a decline to 79% from 81.7%. According to retail consultant Richard Chan of RCMC Sdn Bhd, yields of 6% to 8% is considered decent, given the competitiveness of the industry compared earlier days when mall owners can expect yields of 15% to 20% or more.

What’s for sure is that the good old days of “build and they will come” are long gone and mall owners can't just sit tight and collect rent. Sunway Real Estate Investment Trust CEO Datuk Jeffrey Ng said it is now a tenant’s market and landlords have to play a supportive role to tenants, especially when the economy proves challenging.

Given the growing supply of retail malls in Malaysia, Ng said tenancy mix and offerings are becoming more similar. This could lead to market share dilution for existing players while the newer ones that cannot differentiate themselves may find it hard to sustain footfall after the novelty wears off .

In short, mall operators and retailers now have to work harder to attract shoppers and reach out to previously untapped or under-served segments. 

But Savills Malaysia’s Soo opined that it isn’t all doom and gloom, though it is certainly more difficult now to create another giant like Suria KLCC or Mid Valley Megamall. “There are opportunities as well. Everyone is trying to refine their game and strategy,” said Soo.

The key, is to go back to basics and understand the needs and wants of a mall’s primary catchment area. This means understanding the demographics, spending power and lifestyle demands. “Shopping is no longer about going somewhere to buy something. It is all about the experience,” said Soo.

But in the mean time, more shopping centres are up for sale. 

To read more and find out why, as well as what are the malls that have been put on the market or already sold in the past nine months, pick up a copy of The Edge Malaysia today at newsstands near you.

P/S: Don't forget — The Edge Malaysia can also be downloaded from Apple's AppStore and Androids' Google Play.

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P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.