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Wednesday, March 23, 2011

Retail property projects to soften Klang Valley rental rates

PETALING JAYA: The scheduled completion of a number of retail property projects in the Klang Valley offering 3.5 million sq ft of net lettable space this year is expected to soften rentals and reduce occupancy rates, property consultants said.

Allan Soo

CB Richard Ellis managing director Allan Soo said the additional space that would come onstream this year might lower the average occupancy rate of shopping centres in the Klang Valley to 90% from 95% now.

Occupancy rates are currently around 93% to 95% in the city centre and suburbs while most leading shopping centres have over 95% occupancy.

Soo said new retail centres of less than two years might have to offer rental rates that were 15% to 20% below market rates.

“This may lower the market's average rental rates by about 5%,” he said. Prime retail rents range from RM15-RM80 in the suburbs and RM27-RM107 in the city centre.

Last year, a number of projects were delayed and only about 2 million sq ft were added to the market.

The current retail net lettable area is 42.3 million sq ft in 130 centres, which is equivalent to 6.2 sq ft per capita.

Soo said most prime retail centres including Suria KLCC, Mid Valley, KL Pavilion, The Gardens, Sunway Pyramid phase 2 and AEON Bukit Tinggi, underwent rent reviews early last year.

Some of the prime lots in these centres are commanding monthly rentals of more than RM100 per sq ft. The next rent review will be in 2013.

DTZ Nawawi Tie Leung executive director Brian Koh said that with the new space coming onstream, market fragmentation was expected to set in.

“Although the prime shopping centres will be relatively unaffected, those in less prime locations and some of the new centres will be impacted,” he added.

Koh said that on the whole, the retail sector would still be quite stable given that retailers were quite optimistic of their sales performance.

Soo concurred saying retailers had turned positive with expectation of 4%-5% sales improvement this year.

“Demand recovered last year and turnover on same store sales increased by 5%-10%, with some reaching pre-crisis levels again. Some retailers are planning expansion while others are taking the opportunity to drive hard bargains,” he added.

The huge liquidity in the system will be a boost to retail spending.

Going forward, Soo said the mass rapid transit project will do a lot of good for the Klang Valley's retail sector as it was set to improve the connectivity between the residential areas and the shopping centres. Knight Frank Research in its latest report said several notable retail projects under construction or being refurbished within the Klang Valley were scheduled for completion in the first half of this year.

These centres have a combined net lettable area of about 3.48 million sq ft.

The retail sector is anticipated to continue to perform well, albeit at a slower pace than 2010, stemming from the country's slower growth forecast for 2011 and volatility in the world economy.

The report said that with stiff competition among existing and incoming malls, the older malls would continue to reinvent themselves by embarking on asset enhancement and repositioning initiatives such as expansion and upgrading works, and improving on their tenant mix to stay competitive.

By The Star

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