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Saturday, January 28, 2012

Retail space challenge

Growth of retail sector depends on balance in demand and supply of retail space

IT might be the year of the dragon – a Chinese astrological symbol that is said to be synonymous with power and good fortune – but for property developers of new shopping malls in the country, the ongoing uncertainty in the global economy and oversupply of retail space might just douse their burning business plans.

Tan: ‘When export-oriented manufacturing sector slows down due to low external demand, it will affect local employment market and retail spending.’

According to Henry Butcher Retail managing director Tan Hai Hsin, about 10 new shopping malls are expected to be opened this year in the Klang Valley alone.

“The total retail space for Klang Valley in 2011 was more than 52 million sq ft. For this year, it is expected to increase by at least 3.5 million sq ft, he tells StarBizWeek.

“This sub-sector is growing, based on the number of new shopping centres that will be completed. However, it will be a challenge to fill up all the retail shops upon opening. It will take them at least a year to do so.”

Tan says the growth of this sub-sector is highly dependent on consumers’ spending power this year.

Elvin: ‘Lenders and regulators should continuously insist on detailed market and feasibility studies and updates of those studies from time to time.’

Khong & Jaafar Sdn Bhd managing director Elvin Fernandez points out that this sub-sector was relatively strong in 2011 and will likely continue to be strong based on continued robust consumer spending and support from tourism spending.

“Despite the global turmoil, consumer spending has not slowed down. Oversupply for the retail sector is usually less of a concern because owners or developers usually do a lot of pre-development research and planning before bringing a shopping centre into the market.

“However, it is still important for more information flow through the media to ensure that the numbers hitting the market are known by all – investors, developers, regulators and the general public and this critical flow of information in itself helps to balance supply and demand.”

Elvin says that there are “shadows of looming oversupply” in the next two to five years as more of the bigger property projects, many of them under the Economic Transformation Programme (ETP), get under way.

“Lenders and regulators should continuously insist on detailed market and feasibility studies and updates of those studies from time to time and not dispense with them for reasons of cost.

“They must also be perused by the user of the reports and not done just as a matter to satisfy compliance,” he says.

Elvin adds that in the retail industry, a shopping centre maintains its attractiveness by sustained astute mall management over a long period of time.

“Location is important but it is not everything. Mall management is more important. Positioning the mall, (having) the right tenant mix and the myriad of small details count in drawing shoppers in.”

Tan reckons that the success of a shopping mall is not location-specific but, project-specific.

“For example, Suria KLCC, Mid Valley Megamall, Pavilion KL, Plaza Sungei Wang, Berjaya Times Square, One Utama, Sunway Pyramid and a few more will remain as popular shopping centres in Klang Valley.

“At the same time, shopping centres that have been suffering from low shopping traffic will continue to face challenges in attracting crowds,” he says.

Tan says that there is still a clear disparity between success and failure.

“Popular shopping centres throughout the country continue to attract shoppers and quality tenants despite intense retail competition and weak economy. On the other hand, poorly occupied shopping centres continue to suffer.

“Last year, some shopping centres were giving long rent-free period to their retailers,” he says.

According to Tan, average rental growth for Klang Valley shopping-centre market should be not more than 5% this year.

“Average occupancy rate for Klang Valley shopping centres should remain at around 85%,” he says.

Elvin says the continued economic growth will underlie the growth of the retail sector.

“Will the global economy sink further? The European sovereign debt crisis continues and there is sluggish economic growth in the US despite a prolonged period of pump-priming.

“Will China and India slow down, although inflation in both countries is abating, which will allow them to stimulate further their economies.

Elvin notes that with Malaysia being an open economy and dependent on exports, he says that “it would not look good for us” if the global economy does not recover.

“The economy will have knock-on effects on the property market and may affect consumer spending.

“The authorities are also trying to slow or bring down household debt and this may crimp to an extent consumer spending. On the positive side, the rollout of the ETP projects may add buoyancy to consumer spending and this may also be an election year, which usually results in increased activity and spending.”

Tan concurs that the unresolved eurozone debt crisis, the potential US double dip recession and the recent decline in China export market will affect the Malaysian economy in 2012.

“When export-oriented manufacturing sector slows down due to low external demand, it will affect local employment market. Some Malaysians may be out of jobs this year, many will not get salary increments and graduates will not be able to find jobs. All these will affect retail spending.

“In addition, the uncertain world economy will indirectly lead to Malaysian consumers being cautious in their spending because they are worrying about their future job prospects. They will wait for a sale before they buy. They will look out for value-for-money promotions.”

Tan notes however that the 1.2 million government servants that were given salary increment and bonus recently will boost consumer spending.

“RM100 cash for the purchase of school books and related items has been given out to each student from standard one to form five in Malaysia. A one-off RM500 has also been given out in phases to families with income of less than RM3,000 per month.

“These will boost retail spending to a certain extent this year.”

According to the Valuation and Property Services Department’s Property Market Report for the first half of 2011, the retail market recorded substantially increased take-up space of 258,462 sq meters during the period.

All states except Kelantan recorded positive take-up, with Kuala Lumpur leading the take-up with 54,653 sq meters.

“As at end-June 2011, the country has nearly 2.05 million sq meters of space available for occupation,” the report said.

On the construction front, there were 15 completions in the first half of 2011 with 191,078 sq meters of new retail space entering the market, bringing up the country’s total existing space to 10.78 million sq meters.

The report also said rentals in shopping complexes in most states were generally stable in the first half of 2011.

It said rentals of retail space of shopping complexes in Kuala Lumpur were largely stable with isolated movements recorded in few buildings.

“Suria KLCC obtained premium rentals at RM592 to RM753 per sq meter for its lower ground floor units while retail units in KL Pavilion breached more than RM1,000 per sq meter.

“Bukit Bintang Plaza recorded a double digit increase of 11.5% for its ground floor units but those in the lower ground and second floor recorded slight decreases of 3.6% and 3.0% respectively.”

In Selangor, it was disclosed that rentals of retail space in shopping complexes were also stable with increases recorded in selected buildings.

“The Curve saw the rental of its ground and first floor units increased by 12.4% to 36.6% due to rental review, with rentals ranging from RM79.11 per sq meter to RM114.74 per sq meter.

“Rental in AEON Taman Equine recorded gains of 4.5% to 11.8% while AEON Bukit Tinggi in Klang saw higher gains of 7.6% to 40.0% in the review period. However, there were slight declines of 2.8% to 3.6% in the latter for its second floor units,” said the report.

By The Star

Al-Hadharah REIT net profit soars 273pc

KUALA LUMPUR: Al-Hadharah Boustead REIT (Al-Hadharah REIT) turned in a historically strong performance for the final quarter of its year ended December 31 2011.

It posted a net profit of RM239 million compared with RM32 million in the corresponding quarter last year.

The significant jump was mainly due to fair value gains and an increase in rental income, Al-Hadharah said in a statement yesterday.

This boosts Al-Hadharah's full-year net profit to RM306 million compared with RM82 million last year, up a whopping 273 per cent.

Group revenue rose 33 per cent to RM100 million from RM75 million in 2010.

The realised operating profit for the year was RM93 million, a substantial jump of 37 per cent from RM68 million last year.

The remaining profit was derived from fair value gains, the company said.

"We are pleased to maintain our position as a leader in the REIT sector with an exceptional performance for financial year 2011," Al-Hadharah chairman Tan Sri Lodin Wok Kamaruddin said in the statement.

"Despite the uncertain global economic climate, by building on our established track record and exploring further opportunities in the market, we were able to continue to deliver greater value to our unitholders with improved earnings," he added.

Lodin said in line with its accounting policy, the company had undertaken a revaluation of its assets, recording a fair value gain of RM213 million.

This contributed to its total profit for the year and resulted in an increase in the closing net book value of its investment properties to RM1.3 billion, he added.

Al-Hadharah REIT's unit price closed at RM1.54 per unit (2010: RM1.44 per unit) on December 31 last year.

Its net asset value for the 12-month period rose to RM1.81 per unit (2010: RM1.42 per unit).

At the close of the financial year, the fund's market capitalisation grew to RM965.4 million, up substantially a significant jump compared with RM802.1 million in the previous year.

To reflect the strong performance, Al-Hadharah has announced a final dividend of eight sen, bringing the total dividend for the year to 12 sen. This represents a strong yield of eight per cent based on the closing unit price of the year.

"Moving forward, we look forward to further cultivating our portfolio of assets and enhancing our earnings potential.

"Given our unique position as Malaysia's only plantation-based REIT coupled with the steady demand for commodities, we are confident that we are poised for greater growth in the year ahead," Lodin said.

By Business Times

Berjaya Land mulling hotel divestment?

OVERSEAS ASSETS: Properties earmarked for sale are in Sri Lanka, Seychelles, Singapore and Vietnam, which could fetch US$170m, says source

TYCOON Tan Sri Vincent Tan Chee Yioun’s Berjaya Land Bhd (BLand) is looking to divest a majority of its existing hotel properties abroad, sources say.

The hotel assets in Sri Lanka, Seychelles, Singapore and Vietnam, if sold, could fetch some US$170 million (RM517 million) in value, a source told Business Times.

It is believed that an agent may have been appointed as potential purchasers have been approached for the sale of a couple of the company’s hotel assets.

Berjaya, when contacted to confirm if some of its hotels abroad were up for sale and if it had hired an agent to execute the sale, said: “We are not aware of any sale of our properties at this juncture and there are no further comments on this issue”.

The asking price for Berjaya Hotels Singapore is around S$40 million (RM97 million) and the Intercontinental Hanoi Westlake in Vietnam was offered for an estimated US$80 million (RM243 million).

Other resorts identified for sale include two hotels in Seychelles (Berjaya Praslin Resort andBerjaya Beau Vallon Bay Resort and Casino) and one in Sri Lanka (Berjaya Hotel Colombo).

While it is unclear if the Sheraton Hanoi Hotel will be sold, a source said that the group is not looking to sell Berjaya Eden Park London in the UK.

BLand, in its annual report for the period ended April 30 2011, said performance of its overseas properties was mixed, registering gross revenue of RM64.2 million, representing a 4.7
per cent drop from RM67.4 million recorded in the previous year.

Room occupancy, however, had improved to 67 per cent from 64 per cent but the average room rate dropped by 9.8 per cent from a year ago.

In Seychelles, Berjaya Beau Vallon Bay Resort and Casino and Berjaya Praslin Resort posted marginally lower gross revenue due to stiff competition from a newly-opened resort on the island and lower arrivals, the annual report added.

“The InterContinental Hanoi recorded an occupancy of 61 per cent from 53 per cent in the previous year, but the overall market recovery in Vietnam was slow and competition from new hotels in the city was intense,” it added.

Berjaya, meanwhile, will continue to own the Long Beach Resort in Phu Quoc, Vietnam, and will be building a new hotel including a 280-room hotel in Bien Hoa City Square in Ho Chi Minh City.

By Business Times

Chaotic traffic situation at RM10mil temporary bus terminal

Aerial view: The temporary bus terminal is located near the Sultan Abdul Halim ferry terminal in Butterworth. The green patch on the left was previously occupied by the former bus terminal and has been earmarked for the Penang Sentral project.

The Federal Government should consider calling a fresh tender for the RM2.7bil Penang Sentral transportation hub project, a consumer group said.

Penang Consumer Protection Association president K. Koris said this should be done as it has been more than four years since the project’s groundbreaking ceremony which was performed by former Prime Minister Tun Abdullah Ahmad Badawi in 2007.

He said if the appointed contractor was incapable of handling the mega project, then the Government should re-tender it in an open tender.

He said the Government had announced that the project, which would be similar to KL Sentral, would serve as an integrated traffic dispersal system for the northern region.

“Sadly, work on the project has yet to start except for the construction of a RM10mil temporary bus terminal and hawker centre nearby back in 2008,” Koris said in an interview.

He claimed that the situation at the temporary terminal was often chaotic and that the narrow one-way stretch on Jalan Pantai leading to the terminal was choked with traffic daily.

“The contractor should have constructed a proper lane with roofing to enable cars to drop off and pick up commuters at the temporary site.

“Now, motorists have to jostle with express buses and local stage buses as well as with petrol tankers, that frequent the nearby petrol plants, to drop off commuters,” Koris said.

Bagan Barisan Nasional co-ordinator David Chua said the project was vital to give Seberang Prai a major boost in terms of economic development.

“Rapid Penang has also committed to increase its fleet of buses in Seberang Prai by December but, with limited space at the temporary terminal, it may not be possible for fear of worsening the traffic congestion there,” he said.

Chua also said the project contractor must give due attention to the safety of commuters, including the disabled, by providing necessary amenities for them at the bus terminal.

Penange Public Works, Utilities and Transport Committee chairman Lim Hock Seng said the contractor had yet to submit the project’s planning permission application to the Seberang Prai Municipal Council.

“It has been over a year since the state helped the Transport Ministry acquire a parcel of state land to be merged with other parcels of land belonging to the Penang Port Commission, Malaysian Highway Authority and Rail Authority Commission to make way for the project.

“We will help ensure that the council expedite the project’s planning permission and building plans once we receive the necessary applications,” Lim said.

Last November, Northern Corridor Implementation Authority chief executive officer Datuk Redza Rafiq had said that the project, which has a gross development value of RM3.1bil, would be built in three phases and scheduled for completion by 2020.

He said the transportation hub would be able to accommodate up to 180,000 passengers a day.

The project, developed by Malaysian Resources Corporation Berhad (MRCB) in partnership with Pelaburan Hartanah Bumiputera Berhad over 12.8ha, is part of the Northern Corridor Economic Region initiative. Both companies formed a joint venture company called Penang Sentral Sdn Bhd which will undertake the development of the transport and commercial hub.

MRCB Selborn Corporation Sdn Bhd, a subsidiary of MRCB, has been appointed to manage the development, design, construction, completion and maintenance of Penang Sentral.

By The Star