Asian Cities Report – 1H 2019 REPORT Savills Research Kuala Lumpur Retail Kuala Lumpur Retail New megamalls to enter the market MORE MALLS CONTINUE TO OPEN IN GREATER KL GRAPH 1: Cumulative Retail Supply In Greater KL, Total retail supply increased 3.1% year-on-year (YoY) in 2018, pushing up total 2008 to 2019E retail stock to 64.3 million sq ft, with suburban areas maintaining the highest KL City KL Suburbs Greater KL Supply Growth (RHS) market share (82%) in Greater KL. New supply of retail space increased by 2.0 million sq ft in 2018, bolstered by seven new completions, fi ve of which are located 80 12% in the suburbs, and the remaining two within KL City. These developments 69 70 64 include Parkson M Square (350,000 sq ft), Evo Mall (240,000 sq ft), KL Eco 62 10% 61 City Mall (250,000 sq ft), Eko Cheras (600,000 sq ft), Kiara 163 (300,000 sq ft), 60 57 54 Shoppes @ Four Season Place (200,000 sq ft) and GMBB (109,000 sq ft). 48 49 8% 50 46 Incoming mall supply in Greater KL is projected to grow at a compound 42 39 40 annual growth rate (CAGR) of 7.6% from 2018 to 2022. Despite consumers’ 40 6% cautious approach to retail spending, new mall openings continue unabated. 30 In 2019, Greater KL will see 4.8 million sq ft of lettable retail space completed; 4% major projects are Tropicana Gardens Mall in Kota Damansara and Central 20 i-City in Shah Alam (opened April 2019). At the end of 2022, existing stock could 2% reach 78.4 million sq ft if all of the 18 projects under construction are completed RETAIL SPACE (MILLION SQ FT) (MILLION SPACE RETAIL 10 on schedule. However, the issue of retail oversupply is usually location-specifi c, 0 0% and does not aff ect less-affl uent suburbs. 2011 The abundance of pipeline retail space has spurred retail mall owners to 2017 2012 2015 2013 2018 2016 2014 2010 2008 2009 2019E re-evaluate all of the vital factors which attract shopper traffi c: location, Source Savills Malaysia Research connectivity, concept, target market, tenant mix, car park spaces, security and cleanliness. Lendlease’s The Exchange Mall, Pavilion Damansara Heights, Mitsui Shopping Park Lalaport, and Pavilion Bukit Jalil are expected to greatly aff ect the performance of the older, less trendy retail malls. The current intense competition from new retail malls has already led to some older malls GRAPH 2: Average Occupancy Rates In Greater KL, experiencing declines in footfall due to their limited selection of retailers and 2008 to 2018 product off erings, and in some instances, poor management and maintenance. 100% RETAILERS ARE CAUTIOUS ABOUT THEIR BUSINESS EXPANSION PLANS, MINDFUL OF PIPELINE SUPPLY OF RETAIL 95% MALLS The average occupancy rate of retail malls in Greater KL increased slightly to 87.8% in 2018 (87.6%: 2017), though it was still below the 90% mark set in 2015. 90% Well-established, prime regional malls and megamalls have eff ectively maintained high footfall, sustaining average occupancy in excess of 90%. Neighbourhood 85% malls and some recently opened malls have struggled to reach high occupancy rates on opening, mainly due to the large availability of locations for retailers to 80% choose from. Retailers are taking this opportunity to carefully assess suitable timings and locations for new stores. Most of the new retail malls opened since 2017 have been slow in attracting a suffi cient number of retailers, resulting in an 75% average occupancy of less than 80%. Small and mid-sized neighbourhood malls which are more than 20 years 70% old have been able to maintain solid occupancy of above 85%. Their strength lies in their locations, which are all in densely populated areas. These malls 2011 2017 2012 2015 2013 2018 2016 2014 2010 2008 2009 include Ampang Point, Cheras Leisure Mall, Bangsar Shopping Centre, IOI Mall Source Savills Malaysia Research Puchong, Subang Parade, Amcorp Mall and Plaza Alam Sentral. Tired-looking retail malls are stepping up by undergoing refurbishment and repositioning to meet ever-changing consumer behaviour and retailer requirements. PRIME RENTS AND THE RETAIL INVESTMENT MARKET The prime retail index remained unchanged at 227 points in 2018. Prime rents for malls in KL City such as Suria KLCC and Pavilion KL are said to have hit a high range of RM220 per sq ft per month and RM110 per sq ft per month, respectively. In the suburbs, 1Utama and Sunway Pyramid commanded the highest average prime rent of RM55 per sq ft per month whereas Mid Valley Megamall commanded rents as high as RM80 per sq ft per month. Given the large amount of retail supply, rental discounts in new projects have restricted rental growth in non-prime areas. Monetary incentives are often given to entice established tenants to open savills.com.my/research 3 Kuala Lumpur Retail stores in their retail malls. Nevertheless, stable rental levels across all prime retail segments are anticipated despite the challenging retail environment. GRAPH 3: Prime Retail Rental Index, 2005 to 2018 Three transactions were recorded in Greater KL—the sale of the vacated SSTwo Mall, owned by Asia Retail Mall Fund II and managed by AsiaMalls Sdn Bhd. The mall was acquired by DK Group of Companies from the ultimate 250 owner, PGIM Real Estate, at an estimated price of RM180 million. The mall operated for only 4½ years before it shut down in 2015. 2018 also saw Indonesia’s 225 Riyadh Group announce that they will be investing approximately RM1.88 billion in Malaysia by acquiring a 65% stake each in Mainstay Properties Sdn 200 Bhd (who own the existing Space U8 Mall) and Horizon KLPO Sdn Bhd (who developed Horizon Village Outlet). 175 OUTLOOK Millennial shoppers are poised to be the biggest spenders in the Q4/2005 = 100 150 future. The millennial population in Malaysia (aged between 19 and 35 years) in their 125 prime spending years is estimated to account for 29% (9.4 million people) of the total population in the country. 100 Retail is no longer solely about e-commerce versus physical stores. It is a 2011 2017 2012 2015 2013 2018 2016 2014 combination of both, providing millennials with in-store experiences along with 2010 2007 2005 2008 2006 2009 the ease of shopping online. The days when retail malls could depend on big, Source Savills Malaysia Research popular brands to attract shoppers are now gone. The presence of more retail Stable rental levels across all prime retail segments are anticipated, despite the challenging retail environment. malls in Greater KL is expected to further dilute the market as most malls will GRAPH 4: The Millennial Generation In Malaysia, be off ering similar goods and services. This means that retailers will continue 2010 to 2018 operating their businesses in a challenging environment. Food and beverage off erings remain the main crowd-pullers: attracting 2010 2012 2014 2016 2018 footfall while providing venues for social as well as economic interaction. 3,500 Millennial Generation 3,000 2,500 2,000 1,500 POPULATION 1,000 500 0 9 4 75+ - 2 - 34 5 - 5 9 0 - 4 - 0 0 0 15 - 19 - 15 10 - 14 - 10 25 - 2 2 3 25 - 29 - 25 55 - 59 35 - 35 39 65 - 69 - 65 70 - 70 74 20 - 20 24 45 - 49 - 45 50 - 54 - 50 30 - 34 - 30 60 - 60 64 40 - 44 - 40 AGE Source Department of Statistics, Malaysia 4 Savills Malaysia Level 9, Menara Millenium Jalan Damanlela, Bukit Damansara Kuala Lumpur 50490 Malaysia +603 2092 5955.