Sunway to pump billions into malls despite oversupply

This article first appeared in The Edge Malaysia Weekly, on September 2, 2019 - September 08, 2019.

In the group’s 64-acre hybrid retail park in Sunway Iskandar, Big Box will occupy 24 acres and X Park, 40 acres

Chan: We are very excited about opening our seventh retail outlet in Johor on Dec 18. Photo by Patrick Goh/The Edge

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SOME of the bigger cities in Malaysia may have too many malls but Sunway Group believes there are still pockets nationwide that are underserved.

Over the next four years, the group plans to invest RM2.25 billion in mall openings in Johor, Ipoh, Penang and Seberang Perai, adding three million sq ft in net lettable area (NLA) to its total supply. These new openings will raise the number of malls operated by the group to nine with a combined NLA of 7.271 million sq ft, strengthening its position as the largest township developer-cum-mall operator in the country.

At this size, the group’s operations will be more than five times that of Pavilion Kuala Lumpur and four times that of Mid Valley Megamall.

Sunway will build new malls in Johor, Ipoh and Penang while in Seberang Perai, it will extend an existing one.

In yet another development planned for beyond 2023 but in the populous Klang Valley, it will add a fourth phase to Sunway Pyramid.

An impending launch involves Sunway Big Box, which will be located in the 1,800-acre Sunway Iskandar, just five minutes away from the Linkedua/Tuas Second Link. Sunway Iskandar is a 60:40 joint development with Khazanah Nasional Bhd.

“We are very excited about opening our seventh retail outlet in Johor on Dec 18,” H C Chan, CEO of Sunway Malls & Theme Parks, tells The Edge.

Sunway Big Box will be unlike any of the group’s existing malls. “There are a dozen or more traditional large format malls in Johor, some of which opened in the past two to three years. We are looking at a new format that is a hybrid retail park. It will be very different from a typical mall,” Chan says.

Comprising the Big Box retail and X Park lifestyle adventure components, the 64-acre hybrid retail park will be built at a cost of RM250 million and boast 2,000 parking bays. Big Box will occupy 24 acres — its 100 tenants will take up 500,000 sq ft of NLA — and X Park, 40 acres.

“This hybrid park will have up to 75% street-level access for the convenience of patrons,” Chan says.

The roughly RM500-million extension of Sunway Carnival in Seberang Perai is slated for the fourth quarter of next year. “We are in the process of doubling the size,” Chan says of the expansion, which will add 500,000 sq ft of retail space to the mall.

Sunway Real Estate Investment Trust (REIT) had purchased the land next to Sunway Carnival from Sunway Bhd in 2016 for the expansion.

Meanwhile, Sunway Ipoh Mall is scheduled to open two years later in 4Q2022. It will offer one million sq ft of retail space — 650,000 sq ft built in Phase 1 and 350,000 sq ft in Phase 2. Chan estimates the investment cost at RM500 million.

Sunway Valley City in Ayer Itam, Penang, is expected to open in 4Q2023. Also with an NLA of one million sq ft, the mall is estimated to cost RM1 billion or twice as much to build.

Justifying Sunway’s mall expansion in spite of the retail space oversupply, Chan says, “Overall, at the national level, there is definitely an oversupply. But there are pockets that are still underserved. It depends on the location.”

Referring to Sunway Velocity in Cheras, he says, “It is niche and we are happy with its success. It is the engine of growth for that part of Cheras … we see huge potential (for the mall) there.”

Queensbay Mall in Penang is another. “It is very successful. The primary population within a 5km range is smaller than that in Ayer Itam, which is about 200,000,” says Chan.

He expects Sunway Valley City to be successful, thanks largely to the many housing developments coming up in the area as well as the good infrastructure.

A reason the group’s malls perform better than the others is that they are located within townships that are supported by office, hotel, medical centre, education and residential footfall.

Sunway has also gained a certain amount of loyalty among its retail tenants — 70% of them are happy to set up shop in the group’s next new mall, which means a high tenancy level.

As for the impact of the fast-growing phenomenon of online shopping, Chan says statistics show that in Asia, 88% of total retail sales are still done at physical stores compared with 12% online. This means malls are not going to die anytime soon, he says, adding that within five years, the ratio is expected to be 80:20 and equilibrium to be reached at that point.

Performance-wise, Chan says Sunway’s malls have bucked the trend. Like-for-like retail sales per sq ft grew by double digits in the first half of the year compared with the same period last year.

Growth was also ahead of the industry’s between 4% and 5%.

Retail Group Malaysia has forecast sales to grow 4.9% this year in line with the official GDP projection of between 4.5% and 5%.

Chan says the health of the economy is important as a growing economy “is very important for the mall industry and good for the retail industry as it will have a direct impact on the disposable income of the man in the street.

Sunway Malls also enjoyed double-digit growth in profit per sq ft in terms of value in the first half compared with 2018. Chan says he aims “to continue to sustain the double-digit growth in the second half”.

The group’s current portfolio of malls features Sunway Pyramid (Phases 1 to 3), Sunway Putra, Sunway Giza and Sunway Velocity in the Klang Valley, Sunway Carnival in Seberang Perai and Sunway Citrine Hub in Johor (see table).

Sunway Malls is held by Sunway Bhd and Sunway REIT. The former is also the REIT’s sponsor.

On when Sunway Giza, Sunway Velocity and Sunway Citrine will be injected into the REIT, Chan says, “Once the malls achieve a 6% to 7% yield, they can be considered to be injected into the REIT.” However, he declined to reveal their current yield.

Sunway Big Box’s anchor tenants are NSK Trade City (80,000 sq ft of NLA), BookXcess (30,000 sq ft) and Sportsdirect.com (20,000 sq ft).

X Park, meanwhile, will have a 1km go-cart lane, a 1km flying fox, an all-terrain ATV facility, a driving range, futsal court, dirt-bike track, trampoline park, water sports and 50 glamping units by the lakeside.

It will also boast three drive-ins, including Starbucks, Burger King and KFC.

Other outlets that will be featured are Happy Fish, a heated 25m lap swimming school for toddlers, and Singapore’s MOX, which offers co-working space that can accommodate dancing, tailoring, baking and hobbies.

Although Sunway’s hybrid retail park is looking at attracting Singaporeans, Chan says he expects foreigners to only make up a fifth of the patronage. The market within a 5km radius is 200,000.

Sunway opened Sunway Citrine two years ago and its anchor tenant, Jaya Grocer, is performing “better than the average Jaya Grocer in the Klang Valley”, says Chan. This reflects the demand and affluence within the area, he adds.

It is worth noting that Sunway Big Box is located just 1.5km away from Sunway Citrine.

Another tenant that will feature prominently in Sunway Big Box is a Chinese restaurant that will take up 30,000 sq ft of NLA and offer banquet services for 100 tables.

“These are not things you will find in a typical mall,” Chan says of Sunway Big Box, whose slogan is “Boxes of Experiences”.

A 280-room, four-star hotel is also slated for opening in 2020 while a 200,000 sq ft office block, to be built above a more than 1km-long retail podium, will be ready in 4Q2021.

 

 

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