propertygandhi

Meltdown of Shopping Malls in Malaysia

Has It Begun?

In my Article published in this Newspaper on 25-02-2018, I examined the evidences and concluded that the “Crash of the Malaysian Property Market has begun”.

In this Article I will examine the Shopping Mall Industry in Malaysia and in particular in the Klang Valley with the view to find an answer to the question:-

“Meltdown of Shopping Malls in Malaysia, has it begun?

Supply of Retail (Shopping Mall) Spaces in the Klang Valley – Prior to 2018

Our journey of discovery starts with an examination of the “supply of retail (shopping mall) spaces in the Klang Valley, prior to 2018”

1.00     On 1^st November 2011, Allan Soo of Richard Ellis was quoted by the Star Online as stating as follows:-

i)          The Klang Valley would overtake Singapore in terms of retail space per capita

ii)         As of the third quarter of 2011, total retail space supply in the Klang Valley was 43.7 million sq ft housed in 133 shopping centres and hypermarkets which was equivalent to 7.1 sq ft per capita (based on population of 6.1 million)

iii)         This is higher than Bangkok, Thailand which stands at about 6.5 sq ft per capita, and equivalent to Singapore.

                    

iv)        By 2014, the Klang Valley would have 53 million sq ft of retail space housed in 149 malls and hypermarkets

v)         Only about 43 shopping centres and hypermarkets out of the existing 133 (or 30%) were performing well as at November 2011.

2.00     On 11^th August 2012, the Star Online reported as follows:-

vi)        A BIG pipeline of commercial properties in and around the city centre itching to be launched over the next decade or so is stoking concerns by the day

vii)        Close to half of the TRX real estate project will comprise office buildings. The project comes along at a time when many other mammoth commercial projects such as the re-development of the 926 hectares Rubber Research Institute (RRI) Malaysia land in Sungai Buloh and Permodalan Nasional Berhad’s proposed 100     storey Menara Warisan Merdeka are poised to take off

           

3.00     On 11^th August 2012, Lim Eng Chong of Henry Butcher Malaysia was quoted by the Star Online as stating as follows:-

viii)       As it is now, there is already an oversupply of commercial properties in and around the city centre”

4.00     On 11^th August 2012, James Wong of VPC was quoted by the Star Online as stating as follows:-

ix)        The take-up rate for commercial buildings which are being built and will be completed this year stands at below 50%”

x)         This is for commercial properties in and around the city, but the same scenario exists further away from KL, such as in Cyberjaya; there is already an oversupply situation

Conclusion of Malaysian Property Consultants on the Supply of Retail (Shopping Mall) Spaces in the Klang Valley as at August 2012_______________________________________ 

It appears that Corporate Malaysia is BULLISH on the Development of Commercial Properties in the Klang Valley into the 2020s.

Malaysian Property Consultants are almost unanimous in their interpretation of the situation involving the Supply of Retail (Shopping Mall) Spaces in Malaysia, and in particular the Klang Valley.

Malaysian Property Consultants conclude that:-

“There is an oversupply of Commercial properties including Office and Retail (Shopping Mall) spaces in Malaysia and especially in the Klang Valley”

                                            

Supply of Retail (Shopping Mall) Spaces in the Klang Valley – in March 2018

In 2018 what is the situation with the “supply of retail (shopping mall) spaces in the Klang Valley in March 2018”

American Billionaire Investor Warren Buffet's advice on investment:

"When others are bullish, we should be fearful”.

“When others are fearful, we should be bullish"     

Did Corporate Malaysia take heed of Warren Buffet's advice on their Development of Commercial Properties in the Klang Valley since 2012?

We shall examine a report published by Malay Mail Online on 14^th March 2018 with the headline:-

“Malls facing meltdown as glut continues”

In the report published on 14^th March 2018, Malay Mail stated that, and I quote:-

“True occupancy rates in Klang Valley malls may be as low as 40% in some areas according to a Financial Times (FT) article cataloguing the country’s continued obsessions with building more shopping space despite chronic oversupply”

“On the ground evidence also suggests that mall operators are still struggling”

“The FT said 18.3 per cent of respondents in its survey of 1,000 shoppers in the Klang Valley said they planned to make fewer trips to shopping malls in the next 12 months.

“The FT said 22.2 per cent of respondents in its survey of 1,000 shoppers in Kuala Lumpur said they planned to make fewer trips to shopping malls in the next 12 months.

“Data from the National Property Information Centre (NAPIC) show that in 2018 another 15% new spaces will be added to existing mall spaces”

Malaysian families do not have enough money to spend

The decline in occupancy rates in Shopping Malls in the Klang Valley, in addition to Corporate Malaysia’s BULLISH attitude towards the Development of Commercial Properties in the Klang Valley into the 2020s, may also be attributed to the fact that Malaysian families do not have enough money to spend due to inflation and rising cost of living per the finding of Ameer Ali Mydin of Mydin Hypermarket Chain.

Finding of Ameer Ali Mydin of Mydin Hypermarket Chain

The Malaysian Insight on 5^th February 2018 highlighted the plight of Malaysian families with the headline:-

“Despite growing economy, people just don’t have enough money”

In the report published on 5^th February 2018, Ameer Ali Mydin of Mydin Hypermarket Chain was quoted by The Malaysian Insight as having said, and I quote:-

“The average consumer is unable to meet the rising cost of goods even as the country reports high economic growth”

“I think people just don’t have money”.

“The slump in growth for hypermarkets, due to low sales, occurred at prices of more than 100 common foods that shot up by 14% to 15% in the past 5 years”

“On individual items the prices increases are scary. For instance, cabbage from Cameron Highlands has gone up by a total of 29% over the last five years”

“Ikan kembung hitam (Indian mackerel) by 19%, Maggi brand Chilli Sauce by 38.8% and Ayam brand sardines by 30.6%”

If my prices go up, I’m sure my competitors’ prices would also go up. We are a market leader, our prices go up when our costs go up”

                     

“The rising price of goods have impacted sales at all hypermarkets that accounted for 50% of all groceries sold in Malaysia”

The Malaysian Insight Report also stated that:-

i)          In the first quarter of 2017, overall retail sales declined by 1.2% but hypermarket sales went down by 4.8%

ii)         In the third quarter of 2017, the retail sector shrunk by 1.1% while hypermarket growth declined by 5%

Summary of Findings

The state of the Shopping Mall Industry in Malaysia and in particular in the Klang Valley may be summarized as follows:-

i)          As early as 2012, Malaysian Property Consultants CONCLUDED that:-

“There is an oversupply of Commercial properties including Office and Retail (Shopping Mall) spaces in Malaysia and especially in the Klang Valley”

ii)         The Malaysian Insight Report published on 5^th February 2018, quoted Ameer Ali Mydin of Mydin Hypermarket Chain as having said that:-

“The average consumer is unable to meet the rising cost of goods even as the country reports high economic growth”

            “I think people just don’t have money”.

“The rising price of goods have impacted sales at all hypermarkets that accounted for 50% of all groceries sold in Malaysia”

iii)         The Malaysian Insight published on 5^th February 2018 reported that in the third quarter of 2017, the retail sector shrunk by 1.1% while hypermarket growth declined by 5%

iv)        The Malay Mail Online published on 14^th March 2018 quoting from a Financial Times (FT) article reported that:-

“True occupancy rates in Klang Valley malls may be as low as 40% in some areas and on the ground evidence also suggests that mall operators are still struggling”

Conclusion

At the outset of this Article, I asked the question “Meltdown of Shopping Malls in Malaysia, has it begun?

Based on the contents stated above, I conclude that:-

i)          There is an oversupply of Retail (Shopping Mall) spaces in Malaysia and especially in the Klang Valley since 2012

ii)         Oversupply of Retail (Shopping Mall) spaces further deteriorated between 2012 and 2017 until in March 2018 many Klang Valley malls are 40% occupied with mall operators struggling

iii)         Malaysian consumers do not have money to spend and are not able to meet the rising cost of goods

                                                                                                                                      

iv)        Many hypermarkets and other retailers have less customers resulting in reduced sales and lower profits.

v)         The decline in sales and profits experienced by hypermarkets and other retailers in the malls may lead to these hypermarkets’ and retailers’ closures.

vi)                 The closures of hypermarkets and retailers in the malls would inevitably lead to the eventual closure of the affected Malls.

The Reality

The above scenarios are already happening.

The recent announcement by Parkson that they are closing their Outlets in Maju Junction and Sungai Wang Plaza, both in Kuala Lumpur may be the sign that “the Meltdown of Shopping Malls in Malaysia, in particular in Kuala Lumpur has begun”