Breaking new ground with The Atmosphere

Artist impression of an aerial view of phase 2E or Lava, of The Atmosphere in Seri Kembangan.

The Atmosphere sets a new benchmark for commercial developments in Seri Kembangan, Selangor with its unique hybrid “shopping mall” design for its 20.1-acre commercial centre, says Tempo Properties Sdn Bhd chief executive officer Khoo Boo Hian.

This commercial centre is the second phase of The Atmosphere, which aims to integrate leisure, retail and office elements in a central hub.

“They are shopoffices but the commercial centre looks and feels like a shopping mall. This hybrid design is unique in Malaysia,” says Khoo.

Khoo: ‘The biggest headache for a commercial development is the car park’.

Khoo points out that the unique design of the commercial centre has resulted in “two ground floors”, with an elevated and landscaped boulevard on the second storey.

“With four-storey shopoffice blocks, usually the top two stories don't carry a lot of value. But with our boulevard level, the third level also becomes a ground floor. People come up to the boulevard level using the escalator, and they can patronise the shops.”

Beneath the boulevard level are two levels of covered car park bays, and it was this design element that led to the creation of the “two ground floors” for the centre.

“The biggest headache for a commercial development is the car park. We were toying around with the idea of a dedicated car park block, which is very inconvenient for people. So we spoke to the architects and authorities. We said ... can we have a situation where we do away with the back lane? So, we covered the back lane. That was how the boulevard level was conceptualised.”

Khoo says this also means patrons of the centre benefit from the covered car park and the open courtyard design with space for events.

Highlights of The Atmosphere's commercial centre include a 1.4-acre public park, covered walkways, public toilets, sheltered boulevards, alfresco plazas, open lawns, an open courtyard design for events, and high ceilings for retail outlets, 22 to 28-feet wide shop frontage as well as the spacious 20 to 30 feet wide walkways.

There are 1,600 covered and open-air car park bays. Areas in the commercial centre are inter-linked via covered walkways, escalators and lifts.

“You can walk from one end to the other without getting wet,” says Khoo.

The Atmosphere's commercial centre, with a gross development value (GDV) of RM370mil, was launched in 2009.

Unit prices ranged from RM1mil to RM4.5mil, and the average selling price was RM300 per sq ft.

Khoo says the 136 units in the earlier launches were sold out, and the final launch (phase 2E or Lava) has a 70% take-up rate.

“Investors have benefited in terms of capital appreciation as the units that have been handed over were sold on the secondary market with almost 100% appreciation in price.”

Phase 2E, which will consist of 54 retail and office units, is expected to be completed by end-2013.

Khoo also points out that phase 2E has a “three ground floors” concept with raised courtyard plazas.

The project also won the category of Best Mixed Use Development in the Asia Pacific region (including 5 stars for Malaysia) in the 2011 Asia Pacific Property Awards 2011 (in association with Bloomberg Television).

It is also the first commercial development in the South Klang Valley to be Green Mark certified by Singapore's BCA (Building and Construction Authority).

Khoo says this will translate into lower water and energy bills and maintenance cost, as well as an enhanced work environment.

“To get the Green Mark certification, we have features like heat reflective polycarbonate roofing from Korea to cover the boulevards, water and electricity saving fixtures and fittings, and reflective glass for the shop offices. Together with disabled-friendly features such as wheelchair ramps and tactile tiles, we spent an extra RM1.5mil. But we felt that it was necessary to enhance this development rather than just building another high-density commercial area.”

Khoo says the commercial centre is a strata-title development, “so investors pay some management fees but they get 24-hour security and tip-top maintenance.”

The Atmosphere has three phases of development, with the first phase being a Giant hypermarket on a nine-acre site.

“The Giant Hypermarket chain bought the land in 2008 for about RM30mil. The hypermarket opened two years ago,” says Khoo.

Another 6.1ha remains to be developed as the third phase on the 53-acre site of The Atmosphere, and Khoo says various options are being planned.

“We are looking at close to a GDV of RM1bil eventually for the 53-acre site,” says Khoo.

Khoo also points out that The Atmosphere is strategically located near to areas such as Prima Tropika, Alam Santuary, 16 Sierra, D'Alpinia, Taman Putra Permai and Taman Equine.

“We are in the heart of the Golden Triangle of South Klang Valley with Puchong, Putrajaya and Seri Kembangan forming the axis.” He says Seri Kembangan is a rapidly growing property hotspot, with high demand for commercial zones.

Khoo cites a Spectrum Research Asia report that last year said the residential population of Seri Kembangan within a 20-minute drive time zone was 1.6 million people.

The project is developed by The Atmosphere Sdn Bhd, a joint venture company that is 60% owned by Eksons Corp Bhd, with the remainder owned by Tempo Properties.

Eksons Corp, which is listed on the Main Market of Bursa Malaysia, is one of the largest manufacturers of tropical thin plywood in the Asia Pacific region.

Tempo Properties provides project management support and expertise.

Being different

Khoo says Tempo Properties is a boutique property developer that aims to create a win-win situation for investors, business owners and patrons in commercial developments such as The Atmosphere.

“We aim to provide investors with something that they don't know they want. We think differently.”

He points out that prices for units at The Atmosphere was the highest for commercial developments in the area.

“Our intention was to set ourselves apart, and come up with something that is unique.”

Tempo Properties has its roots in Yoon Hin Sdn Bhd which is a rice wholesaler in Seremban, Negeri Sembilan.

Yoon Hin diversified into property development by setting up Tempo Properties in 1995, and its first project was developing the 48-acre Taman Cenggal Utama near the Seremban International Golf Club in 1997.

Taman Cenggal Utama consisted of 492 units of residential houses and shoplots, and 179 units of low-cost flats.

It was completed at end-2003, and generated sales of RM65mil.

Meanwhile, in the heart of Seremban town, Tempo Properties recently completed the Medan Suria commercial development which consists of 34 units of three and four storey shop offices that generated RM27.5mil in sales revenue.

“With Medan Suria, we became the first developer in Seremban that does not have a back lane for our shops.”

“It took a lot of convincing to get approval from the authorities. Usually, shops have a back lane for rubbish collection. Our reasoning was - in shopping centres, you have food and beverage outlets without any issue. So, why do you need to have a back lane for shops? The project was well taken up, and the authorities were happy with the design.”

It should also be noted that The Atmosphere is adjacent to the 60-acre Taman Prima Tropika residential development, which was Tempo Properties' first foray in Selangor.

Khoo says 470 units of double-storey terrace houses and two-and-a-half storey terrace houses with a GDV of RM180mil have been built in Taman Prima Tropika.

These were launched from 2004 onwards at prices ranging from RM229,000 to RM379,000.

There are 4 ha left for development in Taman Prima Tropika.

Khoo says Eksons Corp and Tempo Properties have another joint venture company, namely Oval Rock Sdn Bhd for property acquisition and development.

Oval Rock is also 60% owned by Eksons Corp, with the balance held by Tempo Properties.

In January this year, Eksons Corp told Bursa Malaysia that Oval Rock had entered into an agreement with Azam Hartamas Sdn Bhd to acquire 22.7ha of leasehold land at Jalan Gombak, Setapak in Selangor for RM17.1mil.

“We might start a mixed development in Gombak in the third quarter of next year. We are also in discussions with a land owner in Cheras for eight acres,” says Khoo.

By The Star

Largest Mitsui Outlet Park to be built in KLIA

MALAYSIA Airports Holdings Bhd (MAHB) and Mitsui Fudosan Co Ltd will build the first upscale Japan factory outlet in Southeast Asia at the Kuala Lumpur International Airport in Sepang.

To be known as Mitsui Outlet Park KLIA, it will be built on a 20.25ha site, complete with F&B and entertainment facilities as its complementary components are based on strong themed attractions such as Knowledge and Attractions, Prime Time Complex and World Food Expo.

The park, the first Mitsui Outlet Park in Southeast Asia and 14th for Mitsui, will be developed over three phases at an estimated gross development cost of about RM335 million.

It will boast a total lettable area of about 47,000 square meters upon full completion, thus positioning the outlet park as the largest within Mitsui's stable of outlet parks.

The first phase of development is expected to begin within the first quarter of next year and is expected to open its doors to the public by end of 2014.

"The outlet park will offer a wide selection of leading brands including luxury brands, popular select shops, high grade and top Asian fashion, sports and outdoor items, fashion accessories and gifts at prices that are guaranteed to be below their recommended retail prices," MAHB said yesterday.

More than 240 famous international designer brands will be invited based on their presence in existing Mitsui Outlet Parks in Japan and China.

It will also offer top Asian fashion from Japan, South Korea, Hong Kong and Malaysia, thus setting it apart from the other retail centres in Malaysia in terms of breadth of brand diversity, it added.

Mitsui, a leading real estate developer in Japan, has been established since 1941 with global operations in the US, UK, Singapore and China.

It is mainly engaged in the development of shopping centres, hotels and office complexes.

The two companies signed a memorandum of understanding on the project yetserday.

"One of the most important benefits from this project is the opportunity to further expand our non-aeronautical or commercial revenue base, in line with our '2010-2014 Business Direction: Runway to Success'," MAHB managing director Tan Sri Bashir Ahmad said.

By Business Times

Sunway on track for RM1.3bil sales

Artist impression of the Sunway Wellesley Phase 1, which consists of 31 units of three-storey shop offices.

SUNWAY Bhd's property development division is on track to achieve its targeted sales of RM1.3bil this year.

The property development and construction group has done RM1bil in property sales to date, says managing director of property development division (Malaysia) Ho Hon Sang.

The major drivers of Sunway's property sales this year include new phases at Sunway South Quay in Bandar Sunway, and Sunway Velocity in Kuala Lumpur.

Ho: ‘Diversification means mitigated impact and warranted performance.’

Ho points out that the group's recent commercial property offerings Sunway Geo @ Sunway South Quay, Sunway Velocity's Phase 3C1 and Sunway Wellesley Phase 1 in Penang had recorded take-up rates of more than 80% during previews.

The gross development value (GDV) of these projects' phases is RM700mil.

“Besides the strategic locations, these developments are well-planned, with good facilities, infrastructure, security features and incorporate great concepts. They have great potential for excellent capital appreciation,” says Ho.

Ho says the recent preview of Sunway Geo's 31 units of retail shops and 220 units of flexi suites, priced at RM7mil and RM400,000 onwards per unit respectively, has received overwhelming response. “The shops recorded take-ups of more than 80%.”

The retail shops are sized at 4,975 sq ft onwards while the flexi suites are sized at 462 sq ft onwards. They have a combined GDV of RM400mil.

Sunway Geo will benefit from the proposed elevated Bus Rapid Transit-Sunway Line.

Sunway Geo is a 23.4-acre mixed development consisting of retail shops, flexi and office suites, serviced apartments and condominiums. It is located next to the award-winning Sunway Resort City, which was recently certified as Malaysia's first green township by the Green Building Index.

Sunway Resort City is home to 200,000 residents and 33,000 students. It welcomes 36 million visitors yearly.

Sunway Geo is an enhanced version of the group's successful retail concept at Sunway Giza and Sunway Nexis located in Dataran Sunway (Kota Damansara), which featured a covered central boulevard and vibrant alfresco food and beverage dining concept.

Ho says the success of Sunway Geo was due to its innovative retail concept, accessibility and connectivity.

It also enjoys a large catchment pool due to its proximity to Sunway Resort City with amenities such as Sunway University, Monash University, Sunway International School, Sunway Medical Centre, Sunway Pyramid, Sunway Lagoon and Sunway Resort Hotel and Spa.

“Access routes are available from Sunway South Quay to Sunway Resort City amenities. These are via free shuttle-bus service, pedestrian-friendly walkways and elevated canopy walk.”

Sunway Geo is also expected to benefit from the proposed elevated Bus Rapid Transit (BRT) Sunway Line that will run through the township and connect to Setia Jaya KTM Komuter station and an upcoming light rail transit (LRT) station at USJ, Subang Jaya.

Meanwhile, strong sales were also seen recently for Sunway Velocity's Phase 3C1, which consists of 276 designer offices and 12 retail shops priced from RM537,000 and RM3mil respectively.

The retail shops are sized from 2,244 to 4,268 sq ft while the office units are sized from 678 to 1,297 sq ft. They have a combined GDV of RM251mil.

Sunway Velocity is a freehold 23-acre integrated development that is located 3.8km from Kuala Lumpur City Centre. It will feature an integration of five elements retail, office, residence, boulevard and garden.

Sunway Velocity is also planned with a one-million-sq-ft lifestyle shopping mall that will be managed by the group. The development is bordering Jalan Peel, Jalan Cheras and Jalan Shelly, and is reachable via Jalan Tun Razak, Jalan Loke Yew and Jalan Pudu.

It will benefit from two upcoming MyRapid Transit (Cochrane and Maluri) and two existing LRT stations (Maluri and Chan Sow Lin).

Ho also says there was strong response to Sunway Wellesley Phase 1, which consists of 31 units of three-storey shop offices priced from RM972,000.

The 60-acre Sunway Wellesley is surrounded by the Jit Sin Independent High School, AEON Seberang Prai City shopping centre, KPJ Penang Specialist Hospital and Bukit Mertajam High School.

It enjoys accessibility to North-South Expressway, Butterworth-Kulim Expressway and the Penang Bridge and is located within half a kilometre from Bukit Mertajam town centre.

Sunway has undeveloped land bank of 2,780 acres, with a possible GDV of RM32bil. About 93% of the group's undeveloped land bank is in Malaysia (mainly in the Klang Valley, Ipoh and Johor), with a GDV of RM24.5bil. The balance is in Singapore (one acre with GDV of RM95mil), China (95 acres with GDV of RM5.4bil) and other countries in the Asia-Pacific region (103 acres with GDV of RM1.3bil).

The group's launch plans in the Klang Valley in the final quarter of this year include townhouses in Sunway Montana (phase two) at Desa Melawati in Kuala Lumpur, cluster homes in Sunway Alam Suria (phase 2C1) in Shah Alam and three-storey park residences in Sunway Eastwood (phase two) in Puchong.

In Penang, it plans to launch three-storey terrace homes in Sunway Cassia (phase two). Meanwhile, in Singapore, the group has been involved in residential developments with Hoi Hup Realty Pte Ltd since 2007.

Sunway's ongoing projects in Singapore are Vacanza @ East (high-rise development with a GDV of RM1.23 bil), The Miltonia Residences (low-rise development with a GDV of RM952.5mil), Arc @ Tampines (high-rise executive condominiums with a GDV of RM1.17bil), Lake Vista @ Yuan Ching (high-rise development with a GDV of RM915mil) and Sea Esta, Pasir Ris (condominiums with a GDV of RM897.5mil).

The projects have a take-up rate of 92% to 100%, except for Lake Vista @ Yuan Ching which has a take-up of 71%. They are expected to be completed from end-2013 till 2016.

In China, Sunway is presently involved in joint-venture property developments in Jiangyin City (in Jiangsu Province) and the Sino-Singapore Tianjin Eco City.

In Jiangyin City, the group, via a joint venture with Shanghai GuangHao Real Estate Development Co Ltd, is developing a 1,200-unit condominium project with a GDV of RM466mil. It is Sunway's maiden project in China and has achieved a take-up rate of 80%.

In the 7,500-acre Sino-Singapore Tianjin Eco City, the group is developing a 98-acre site which has a GDV of RM5.3bil over the next five to seven years. Sunway has plans for this project to be launched in 2013.

Ho is confident about Sunway continuing to enjoy strong property sales despite talk by industry researchers and analysts about a perceived slowdown in transactional activity within the luxury residential market, due to tougher lending guidelines imposed this year.

He points out that Sunway has a diversified portfolio of properties in different price categories as well as different geographies, catering to various target markets.

“Diversification means mitigated impact and warranted performance. We maintain that strategic properties, which have great value, will always be in demand.”

Ho says Sunway's properties come with well-planned facilities and infrastructure, comprehensive security features, and are strategically located in prime locations.

“These are properties that have excellent potential for capital appreciation and most of our customers, especially the repeat clientele, see the value of these properties.”

He says that in the near future, Sunway will launch products, especially landed units, priced below RM1.5mil. “As for the high-rise segment, we have products worth about RM350,000 and above.”

By The Star

Are there too many malls in Penang?

PENANG'S retail scene appears to be on the boil, if the number of shopping or lifestyle malls which have sprouted or are being constructed are anything to go by.

Just how well these establishments and their tenants are doing is anyone's guess, even if some of the major ones found on the island and Seberang Prai appear to not be lacking in terms of human traffic.

The island is currently home to less than 10 shopping malls, while Seberang Prai has about half the number. Not all these establishments are raking in high profits. Those which are managed by professionals and boast solid anchor tenants are the ones who are finding themselves profitable.

Others have been known to be spiraling downwards due to poor management and inadequate planning. Tenants in these centres are finding themselves left with no choice but to move out or come up with novel ways of luring consumers to survive.

A check on the type of merchandise stocked in some outlets reveal that stock has not been refreshed for some time. Others, by virtue of in-store promotions and sales are seeing a little better business although the general consensus is that retail shoppers are not buying as much as they used to.

While some food and beverage establishments with vantage locations continue to see a constant flow of diners, others are lamenting the fact that things have slowed down.

Others doing relatively well as those offering entertainment options like cineplexes, beauty and fitness outlets and also good bookstores.

Some tenants who find themselves struggling appear to be those who are faced with increased rentals and a shrinking pool of patrons (who tend to flock over to the next mall when a new one opens).

For those those living in neighbourhoods within close proximity to shopping malls, especially on the Penang island, their regular gripes these days are centred on horrendous traffic jams in their areas, especially during long weekends and peak hour.

These residents are forced to contend with haphazard parking by those who opt not to park in the generous number of parking bays provided by shopping mall operators.

In order to save parking fees, shoppers have no qualms in parking illegally in a residential area for hours on end, sometimes even blocking the entry way of house owners into their own properties.

Questions being asked about Penang malls are:

* Does Penang need more shopping malls which essentially mirror each other when it comes to tenant mix?

* Are traffic dispersal systems taken into consideration by the local authorities when giving planning permission for projects which generate massive traffic flow into an area?

* Whose responsibility is it - the local government or the business operator's - to ensure that the quality of life enjoy by those living in the vicinity of malls are not adversely affected when a property developer decides to build a neighbourhood mall in their midst?

As traffic congestion in Penang is now getting to unbearable levels during festive and holiday periods, perhaps a review is needed on where future malls should be located, and if these malls are even needed in such great numbers in the first place.

Like most other Malaysians, Penang residents love their malls and their shopping habits sometimes have a tendency to spur a mall-building boom.

The financial shape of retailers and both national and international property developers must also be looked into when shopping malls are being proposed.

Also to consider should be the fact that Internet shopping has and continues to grow by leaps and bounds and that the retail sector would likely be one of the first casualties during an economic downturn.

This in turn, will likely see a state or country left with an increasing number of abandoned - or dead - malls.

By Business Times

The foreign hypermarket dilemma

DETERRENT: Sudden changes and ad-hoc rules governing their operations may not be the best selling points

The probability of a new foreign hypermarket player in the likes of Walmart, Costco and Metro entering Malaysia is close to nil.

A foreign player here not only has to adhere to stringent regulations on expansion and other requirements but brace itself for ad-hoc rules that most often than not involve extra costs.

Rules governing foreign hypermarket operations in Malaysia have changed numerous times since 2001, so much so that it is easy to lose count on those changes that have been made.

At present, the rules governing foreign hypermarkets in Malaysia come under The Guidelines on Foreign Participation in the Distributive Trade Services Malaysia 2004 (revised in 2010).

The guidelines, to name a few, require hypermarkets to be located beyond the 3.5km radius of a town centre, have a floor size larger than 5,000 sq metres and that only one hypermarket is allowed for every 250,000 population.

The initial rules by the then Domestic Trade and Consumer Affairs Ministry, coincidentally shortly after Tesco announced its entry into Malaysia, were to stop the death of sundry shops.

The ministry started receiving complaints that the expansion of foreign hypermarkets was to the detriment of the traditional mum-and-pop stores.

There were three other major foreign players already in the market at that time - Carrefour, Giant and Makro Cash & Carry.

So, for each new location identified for a new store, an impact study (roughly costing RM25,000) on the neighbourhood kedai runcit has to be conducted.

Ad-hoc rules, some later incorporated into the guidelines, were made when, for example, Tesco decided to operate its stores 24 hours. The ministry wasted no time in coming out to say that no foreign hypermarkets would be allowed to operate around the clock.

Several other rules were introduced along the way.

A five-year freeze on openings in certain location was imposed and about two years ago, the ministry decided that it would not issue new licences but simply swap old unused licences for new ones.

And then, there are other obligations that a hypermarket operator has to adhere to.

Each foreign player had to nurture and teach local small- and medium-sized enterprises (SMEs) how to label and package their products. In fact, a few years ago, it was not uncommon to hear that the more these hypermarkets helped the SMEs, the more brownie points a hypermarket got in terms of being considered for a new licence.

More recently, Tukar (small retailer transformation programme) was introduced.

Hypermarket operators are to help sundry shops to modernise and efficiently manage their stores to improve their competitiveness. Each hypermarket is required to pledge that it will transform a certain number of stores.

The most recent ruling is for the need to hold a public hearing when the population to hypermarket ratio is not met. While this appears to be a good solution as it allows the community to decide if they wanted a foreign hypermarket player in the locale, some local councils simply felt that they had no obligation to hold a public hearing.

This simply means you cannot open a store if they don't hear you out. And if a hearing is held, any expenses incurred are likely to be borne by the hypermarket operator.

Investment is not restricted to expansion but a player must be prepared to spend money on impact assessment, SME education, promoting local products and even the Tukar programme.

To be clear, only foreign hypermarket licences are granted by the ministry and only foreign players have to adhere to these guidelines.

There are no restrictions on where local hypermarket operators can open their stores nor where they can source their products from.

So, is it worth going through all this trouble and enter the market as a new player? Possibly not.

The best avenue to expand for a new entrant would be via acquisition of an existing chain.

Based on trend over the last decade, it is pretty safe to assume that more changes can be expected in the future to regulate the industry.

By Business Times

KL prime property market quarterly snapshot shows progress

Despite increasing economic uncertainties, Kuala Lumpur's prime property markets continued to perform well as 2011's momentum carried into 2012, albeit at a slower rate.

Condominium

In the first quarter of this year, the high-end condominium stock increased to 21,214 units with the completion of 285 units in a Bangsar located project. The freehold development, designed for “young and aspiring urbanites,” has six types of unit layout with built-up areas ranging from 671 sq ft to 1,610 sq ft all of which have been sold.

The number of high-end launches slowed as developers focused on the more saleable mid-price range market. One high-end development, located in Ampang, was launched in the first quarter. With good demand from both owner occupiers and investors and early pre-launch marketing by the developer, the freehold development, comprising 500 units, has been almost fully sold. Activity in the high-end condominium market is, however, expected to slow this year, in line with more caution in the market. More developers are expected to adopt a wait and see attitude and many are expected to promote and market their products to gauge demand before officially launching them.

Demand in both the sale and leasing markets has been stronger for smaller units and we anticipate this trend will continue this year with developers building smaller more affordable' units, which cover a larger purchaser catchment. We also expect to see more developers delivering SOHOs (small office home office), SOVOs (small office versatile office) and SOFOs (small office flexible office) in the short term.

Generally, market prices and rental values remained stable and rental rates were steady and average net yields were in the range of 3.5% to 5%. We anticipate that market prices will consolidate this year and rentals will continue to face downwards pressure despite the relatively strong holding power of many investors.

Office

Following the completion of two buildings, located in the city's Golden Triangle, the total existing supply of prime office space in Kuala Lumpur city increased by 1.1 million sq ft. The city centre's prime office market is expected to increase by 2.04 million sq ft this year with the delivery of four prime office buildings.

The average occupancy rate in KL city centre declined from 84.9% in the fourth quarter 2011 to 81.3% in first quarter this year as the newly completed offices were yet to register any physical occupation. However, one of the two was reported to be fully pre-committed. The office market in the city centre registered a net absorption of just below 190,000 sq ft and notable leasing activity was recorded within numerous prime buildings in the Golden Triangle.

In the first quarter this year, the average net rental reduced marginally as many landlords are still maintaining the same rental rates. Some, however, are now willing to offer attractive incentives such as longer rent free periods to attract prospective tenants.

With limited stock available in the market and steady demand from Malaysian investors, the investment market was relatively quiet and no major transactions were concluded.

We believe that if all buildings are delivered on time, the oversupply scenario will become more serious and with steady local demand, but slowing foreign demand, the occupancy rate in the city centre will decline. The lower occupancy rate will result in some landlords reducing their rental rate expectations in a tenant favourable market. Generally, market prices are expected to remain stable but assets with high occupancy rates and superior specifications within prime locations could register some capital appreciation.

Retail

Supply increased marginally, with the completion of the refurbishment and extension of one suburban, prime-retail centre, adding approximately 92,000 sq ft to the total stock and a further 1.4 million sq ft of prime space is expected to be completed by the end of the year in both the city centre and the suburbs.

The average occupancy rate declined marginally from 91.7% to 91%, predominantly due to retail centre owners and retailers undergoing refurbishments of their outlets. However, strong demand prevailed with the majority of the vacant space in new retail developments being pre-committed to by tenants.

Rental and market prices generally remained stable for the first quarter of this year with limited investment stock available. No en bloc transactions involving prime-retail centres were recorded. Investor interest, however, remained strong with a keen focus on prime-retail investment opportunities in either the city centre or the suburbs.

In the city centre, the average occupancy rate is forecast to increase over the next 12 months as retailers take physical occupancy upon completion of their fit-outs and renovations. In the suburbs, however, the market is expected to enter a temporary adjustment period where the occupancy rate is anticipated to reduce marginally as substantial supply will be completed during 2012.

We expect rental values to generally remain stable this year, but there is room for improvement in select prime retail centres in the city centre. Market prices are more likely to see an upside as interest from both local and foreign investors remains strong and many owners remain “unwilling” to sell at the prices most investors are prepared to pay.

David Jarnell, senior vice-president and head of research at Jones Lang Wootton, has over 25 years working experience in the property market and has been based in KL since 1996. This is an extract of a report released this week.

By The Star

Retail sector faces rising costs and prudent spending by consumers

PETALING JAYA: The local retail sector is expected to face challenging times this year as consumers continue to be prudent in their spending while retailers have to face rising cost of goods and operation.

DTZ Research's Property Times on Kuala Lumpur's fourth quarter 2011 report said the situation would affect rental rates, occupancy and future rental growth.

Another property consultancy, Knight Frank in its Second Half 2011 Real Estate Highlights report, said with the abundant supply of new suburban retail stock coming on stream in the medium term, “there is a note of caution that this high impending supply may have a detrimental impact on overall occupancy levels.”

Despite a marginal decline in the occupancy rate, Property Times said major developers were still optimistic and went ahead with a number of new retail projects.

The report revealed that new retail projects expected to be completed in the Klang Valley this year included Nu Sentral, Kuala Lumpur, with net lettable area of 700,000 sq ft; The Paradigm, Kelana Jaya (500,000 sq ft), Setia Alam Mall, Shah Alam (700,000 sq ft); and KL International Airport 2 (350,000 sq ft).

Those slated for completion in 2013 include IOI City Mall Putrajaya, Putrajaya (1.3 million sq ft); Sunway Velocity, Kuala Lumpur (800,000 sq ft); and The Strand Mall, Kota Damansara (300,000 sq ft).

Other future projects comprise the extension project of Suria KLCC by KLCC Property Holdings Bhd comprising a new 300,000 sq ft retail mall that will be integrated to the mall. Suria KLCC recently saw an extension of 140,000 sq ft in net lettable area.

The Naza group will also be developing two retail centres with over two million sq ft of retail space which will be part of its RM15bil KL Metropolis development at Jalan Duta.

Meanwhile, Pavilion REIT plans to add another 300,000 sq ft to its existing Pavilion shopping mall in Kuala Lumpur.

Property Times said one of the latest retail mall opening was that of KL Festival City Mall with approximately 450,000 sq ft of retail space that was completed in the fourth quarter of last year.

“With the completion of the mall and six others in the previous quarters, the retail stock in Kuala Lumpur now stands at 23.7 million sq ft, an increase of 7.4% from the preceding year,” the report said.

“Outside of Kuala Lumpur, the total stock in the rest of the Klang Valley stands at 22.5 million sq ft, a 3.7% increase from the previous year.”

It said during the period under review, retail centres in Kuala Lumpur recorded a slight decrease in average occupancy rate by 0.3 percentage point on a quarter-on-quarter basis and 1.3 percentage points to 90.7% on year-on-year basis.

Meanwhile, retail centres outside of Kuala Lumpur saw a decline of 1.1 percentage points quarter-on-quarter and 0.1 percentage point year-on-year in occupancy rate to 86.9%.

The decline was largely due to slow leasing rate in the newly-completed centres, it added.

The Knight Frank report said the three new shopping centres expected to open during the first half of this year Setia Walk in Puchong; Setia City Mall in Shah Alam; and Paradigm Mall in Petaling Jaya would add another 1.7 million sq ft to the existing retail stock in the Klang Valley.

During the second half year of 2011, there were eight retail property completions that added a total of 2.88 million sq ft of space to the market.

“The total cumulative figure for existing supply of retail space in the Klang Valley now stands at approximately 43 million sq ft,” the report added.

The new completions were that of Publika Mall @ Solaris Dutamas, 1 Shamelin, Kenanga Wholesale City, Southgate, Mines 2, KL Festival City, First Subang and Space U8.

There was one closure recorded during the period, namely Atria Shopping Centre, in Damansara Jaya. The 29-year-old mall, owned by OSK Property Holdings Bhd, will be redeveloped over four years into a new 450,000 sq ft mall and two 16-storey towers of SoFo Suites.

By The Star

Tesco launches Thai property fund IPO

TESCO plc, the world's third-largest retailer, launched the initial public offering (IPO) of its Thailand property fund yesterday, aiming to raise up to 18 billion baht (RM1.9 billion) to finance future expansion.

The offering is part of a trend among retailers in recent years to squeeze more value from their real estate assets, bundling them into a property fund, selling the fund to investors and leasing back the property.

The Tesco Lotus Retail Growth Freehold and Leasehold Property Fund, as it is formally called, comprises 17 shopping malls anchored by a Tesco Lotus hypermarket in cities, including Bangkok and tourist destinations such as Krabi.

The fund "is well positioned to capitalise on the steady growth of the Thai economy, the strength of the retail sector and increasing wealth and consumption across the country," Tesco Lotus chief executive Chris Bush said in a statement.

The property fund, similar to a real estate investment trust, or REIT, will offer shares at a price range of 9.65 baht-10.40 baht (RM1.02-RM1.13) each, valuing the total deal at up to 18 billion baht, Tesco's Ek-Chai Distribution System Co unit said in a statement.

At that price, the fund would have a yield of 6.5 to 7 per cent per year. That yield would compare with 8.14 per cent for both the CPN Retail Growth Leasehold Property Fund, which owns three malls and an office tower, and movie theatre owner Major Cineplex Lifestyle Leasehold Property Fund, according to figures from the Asia Pacific Real Estate Association.

Tesco Lotus expects to add at least two more assets to the fund in the 2012/2013 fiscal year and one or two assets a year after that, according to the statement.

The IPO, Thailand's biggest since Rayong Refinery's US$710 million (RM2.15 billion) offering in May 2006, received US$40 million in commitments from US fund manager, the Capital Group Companies, two sources with direct knowledge of the deal said yesterday.

Bank of America Merrill Lynch, Nomura Holdings Inc, Phatra Securities and Royal Bank of Scotland were hired to manage the IPO.

Tesco lags only French group Carrefour and US industry leader Wal-Mart by annual sales, and has over 5,300 stores in 14 countries.

By Reuters

Asian retail property expected to remain bullish

Firm demand: Pacific Star expects the long-term Asian consumption story to be ‘as strong as ever.’

PETALING JAYA: The Asian retail property sector is expected to remain bullish this year with eager international retailers seeking expansion in Asia, lured by the region's growing wealth and tourism potential.

In the biannual Asian Property Outlook and Strategy report, real estate investment house Pacific Star noted that Asian governments had been focusing on developing domestic demand from a structural perspective, which should bode well for the retail sector.

“The long-term Asian consumption story remains as strong as ever. While we have seen the short-term outlook affected by the uncertainties in the global economy, the growth potential for the region remains.

“This is evident in the comments made by global fashion groups with regards to their expansion plans and the growth in earnings from the region,” said Pacific Star research and strategic planning vice president Lam Chern Woon in a statement recently.

He expects this trend to continue and with it, the demand for innovative retail properties to meet the appetite of the growing Asian consumer.

Pacific Star continues to rate the retail property markets in Singapore, Hong Kong, Kuala Lumpur as Tier 1, given healthy labour market conditions, strong tourism throughput and interest from international retailers.

Markets classified as Tier 1 merit serious investment consideration over the coming six to 12 months, while Tier 2 markets are generally attractive although the risks could be considerably higher due to macroeconomic or supply issues.

“While economic uncertainties will exert downward pressure on prime rents in the near term, the correction is expected to be limited, given the favourable supply outlook and buoyant domestic spending in these markets.

“Retail spending has also held up in Asia due to tight labour market conditions and a buoyant tourism sector,” he said.

He said consumers in this part of the world continue to be more optimistic than their counterparts in the United States and Europe as a result of healthy employment.

While the office sector is expected to be impacted by hiring headwinds due to the fallout from the European debt crisis, the group still rates the Singapore office market as Tier 1 for its attractiveness.

“Pre-commitments have been healthy and the city state remains highly favoured as a global and regional business hub due to its political stability and pro-business environment.

“The cyclical nature of the Singapore office market suggests that it could also recover quickly when global conditions turn around,” he said.

On the Malaysian perspective, the group said the office leasing market in Kuala Lumpur was relatively stable with net absorption improving in the second half of 2011, with relatively healthy economy growth this year expected to support office demand.

However, it said rentals would likely remain soft in the near term with supply outpacing demand, and capital values were expected to remain stable as owners were not under pressure to lower their price expectations.

“Over the medium term, we are cautiously optimistic that governmental initiatives to attract multinational corporations to set up their regional headquarters in Kuala Lumpur will help absorb the new supply and support the office market,” he said.

Meanwhile on the residential front, the group expects policy tightening to tail off where in most Asian residential markets, the effects of earlier property cooling measures have begun to adversely impact sales.

“This has translated into lower home prices in Hong Kong and some Chinese cities.

“Mortgage rates across Asia have also started to creep up over the past few months with a detrimental impact on housing affordability,” he said.

By The Star

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

Oversupply of Klang Valley office space

KLANG Valley's office space may be heading towards a state of oversupply. The total existing supply of office space is 94.4 million sq ft; 73.07 million sq ft of this were occupied in 3Q 2011. This leaves 21.33 million sq ft or 22.6% of the total space, within the various office buildings, vacant.

While a 5% to 10% vacancy is normal for most buildings, the aggregate 22.6% across the office market is high. Apart from this, there are 18.59 million sq ft of incoming space (under various stages of construction) and a further 18.74 million sq ft of planned supply.

This is space that has been approved for development, but for which construction has not commenced as yet, as tallied by the National Property Information Centre or NAPIC.

There is also the possibility that the 18.74 million sq ft could balloon substantially if all the office space being contemplated now and in the near future, especially the Economic Transformation Plan (ETP) are taken into account.

Demand-supply dynamics

In the years to come, the challenge for developers of office space is to make extraordinary efforts to adjust supply to conditions in the market when their projects are due to come on-stream and to do as much of pre-letting as possible.

For owners of existing buildings, hang onto to your tenants! For regulators and lenders, watch this with greater interest.

Much hope hinges on the roll out of the ETP and how it will create new office space demand, and of the order required, to balance demand and supply.

Nevertheless, the office market cannot be looked at, solely, through the lens of total numbers. The market exists in various sub-markets, depending on location and product type.

Each segment has its own demand-supply dynamics. Rents drive the market and post-Global Financial Crisis (GFC), rental levels have dropped to about RM7 to RM8 per sq ft per month for average prime space.

At this level, the office market for average prime space for office buildings sold en bloc can sustain at RM700 to RM900 per sq ft based on its historical yield expectation of about 7% to 7.5%, but this figure is not carved in stone.

For the market to slip below this level, it will take a severe economic downturn. In short, office values are bouncing along around the bottom. Post-Asian Financial Crisis, values did dip below the replacement cost (as it was then), for a number of years.

In terms of office space, the Klang Valley, with an existing supply of more than 90 million sq ft, dominates, compared to Penang's 9.43 million sq ft and Johor Baru's 7.7 million sq ft.

Klang Valley's retail segment, comprising modern shopping centres, is relatively stronger than the office market segment because consumer spending has continued unabated.

But there are shadows of looming oversupply even in this segment. If inflation accelerates, or household spending is crimped, will there be consumer support?

But a well-managed retail centre by its inherent higher sophistication (than an office building), has better strength to tide over temporary downturns. Once a shopping centre has clientele loyalty, usually through a prolonged period of astute mall management, it is extremely difficult for new comers to dislodge it.

Real estate investment trusts or REITs have a heightened presence after the listing of Sunway REIT and CMMT are anchored with retail properties. The latest addition, the Pavilion REIT is also essentially a retail REIT.

REITs are generally defensive investments and are ideal for lowering volatility in a portfolio of stock and bond investments.

Role of a REIT

They are also particularly attractive during difficult economic periods such as, since 2008. They are more convenient proxies for physical property. For that reason, special tax benefits are showered on them.

But, as was seen during the last GFC, to perform true to form they should also display all their other attributes, i.e. a high degree of transparency, low borrowings, professional property management and the comfort that comes from a high degree of regulatory oversight.

REITs have also to display their ability as a sector, and as individual REITs, to ameliorate its greatest weakness i.e. its dependency on short term financing due to the requirement for it to distribute almost all its earnings, yearly.

During the days of easy money before the GFC, cheap financing was not a major issue, but it now is.

As a quid pro quo for favourable tax incentives, REITs are obliged to promote retail investors, apart from institutional investors, to participate in the REIT.

This will meet the regulators objective of deepening and broadening the capital market, and set the foundation for sophisticated products in the future such as the establishment of a property derivatives market.

Retail investors would also have tenancies that come with considerable visibility. REIT managers should provide information as this is the key driver of REIT proposition and not hide behind the guise of protectionism against competition.

The residential sector of the market, viewed from the perspective of the country as a whole, is fundamentally sound.

Losing balance

In the Klang Valley, where residential properties are generally 4 to 5 times annual household income, certain hotspots have elevated this ratio in recent years. Household income in the Klang Valley is about RM6,000 a month.

While house prices have increased, household income has not. Set against property prices, rental yield has dropped over the years, slipping below the critical 3% benchmark.

This is a cause for concern as yield should range between 3% and 6% (all risks net return) depending on house type and whether landed or strata.

Over the past six months, with the onset of greater volatility in global markets stemming mainly from the European sovereign debt crisis, sentiment has filtered down to the residential market in Kuala Lumpur.

Coupled with tightening measures by Bank Negara for loans, the market has slowed and demand has become subdued. It is hoped that this has taken some heat out of the speculative end of the market.

Keeping a look out

Going forward, into 2012, the issues that bear watching for the property market in Malaysia, are the continuing European debt crisis and the sluggish US economy and its effects on the global economy and the possible slowing of the Asian behemoths, China and India (which have regional implications).

There is also the possible General Elections in Malaysia (and its ramifications), the possible introduction of the Goods and Services Tax (affecting in particular house prices, developers and service apartments) and the possible unprecedented legislative introduction of a new, single mode of housing delivery by way of the “build then sell” system (humungous down-the-line implications).

There is a possibility of further tweaking of rules for housing loans (to possibly also contain household debt) and other possible monetary and fiscal measures (may be negative or uplifting for the property market) that may be put in place should the global economy weaken further.

Elvin Fernandez is the MD of property consultancy firm Khong & Jaafar Sdn Bhd.

By The Star

Atria SOFO Suites popular with buyers

Bustling: The special preview and launch of Atria SOFO suites attracted a lot of buyers.

DEVELOPER of the Atria@Damansara, OSK Property Holdings Bhd, hit the ground running when its Atria SOFO Suites were sold out just after its launch recently.

The 392 SOFO (small office flexible office) units are part of the 2.23ha freehold mixed development project replacing the Atria shopping centre.

Scheduled to complete in 2014, the project also features a shopping gallery and entertainment facilities.

Housed in two 16-storey towers above the retail floors, its built-up size ranges from 488 sq ft to 1,343 sq ft. Depending on the size, each unit is priced from RM360,800 to RM1mil.

Some of the unique selling points of the SOFO units are their modular design for better space planning, high ceilings at approximately 2.8m, vertical void for better ventilation and garden terraces on selected floors.

Company director Ong Ju Xing said the development complemented the mature neighbourhood very well as it catered to the middle and upper class segments.

He added that tenants from the former Atria shopping centre had also expressed interest in the new shopping gallery.

“We believe the development project will cater and complement the mature and affluent township of Damansara Jaya,” he said during the launch.

The project has a gross development value of close to RM1bil.

For details, visit www.atria.com.my

By The Star

Influx of office space in Klang Valley worsens oversupply situation

KUALA LUMPUR: An influx of office space in the Klang Valley is putting a downward pressure on yields.

Property consultants said the entry of more office space was making the oversupply situation worse.

However, they said the situation could be remedied should the economy perform better, thus keeping demand afloat.

“In certain areas, yields will be pressured downward because of the glut situation. But this is also highly dependent on the location of the offices. Those located in prime areas will have less chance of coming under yield pressure,” DTZ Debenham Tie Lung executive director Brian Koh told StarBiz.

Khong & Jaafar managing director Elvin Fernandez said that the slightly higher vacancies this time around was “not too abnormal a situation”.

“The thing about property cycle is that there can be a glut today but this oversupply condition can be offset if demand returns. I do not view it as being serious,

“However, there could be a lot more supply that would flood the office space sector in the medium to long term,” he said.

There were 20 million sq ft of vacant space in the Klang Valley, 22.5 million sq ft of office space under construction and 25 million sq ft which had been approved for construction.

The Government recently earmarked several areas for commercial development such as the KL International Financial District in Jalan Tun Razak, the 100-storey Warisan Merdeka, the Sungai Besi military airport and the Rubber Research Institute land in Sungai Buloh which are expected to come onstream within the next 10 years.

Meanwhile, a report by CB Richard Ellis released earlier this month revealed that office yields in Kuala Lumpur prime area had been flat from 2005 until 2011, ranging from a low of 6.25% to a high of 6.75% (see chart).

The report also showed the office space vacancy rate in the Klang Valley was under 13% on an average basis, which consultants said could rise once new space came in with the completion of several mega projects.

“With all the large-scale development projects coming in, we are looking at a potential oversupply situation but if the economy does exceptionally well despite the problems in the eurozone, this problem would ebb,” said Koh.

Vacancies had risen during the 2008 global financial crisis in prime office spaces and rental rates had been on a slight decline.

The prevalent trend among corporates was to move their bases away from the city centre into newer office buildings within other established suburbs such as Petaling Jaya and Klang as many of the workers lived in these suburbs.

“After the My Rail Transit has been completed, office development would focus back to the city centre as long as they are affordable and corporates can make a decent profit even after paying off these leases. I expect this trend to reverse and that Kuala Lumpur will remain at the primacy of development in the Klang Valley,” Fernandez said.

By The Star

Retail project promises unique building design

Thinking green: Lava boasts three-levels of ground floor with a multi-purpose atrium area and naturally ventilated courtyard plazas.

The Tempo Properties Sdn Bhd unveiled Lava recently, a retail project that is part of The Atmosphere commercial development in Seri Kembangan.

It recently won the regional award at the Asia Pacific Property Awards for best-mix used development in 2011.

Lava features three levels of ground floor with a multi-purpose atrium area and naturally ventilated courtyard plazas.

Its modern architectural façade incorporates minimalist features using predominantly brick-and-mortar, glass and steel elements as well as a lush courtyard and garden space, which provides an innovative urban landscape.

The units are priced from RM783,000 onwards and are targeted to be completed by the third quarter of 2013.

Tempo Properties Sdn Bhd chief executive officer Khoo Boo Hian said the project was an integrated development comprising various commercial and retail spaces where the Lava was an essential layer.

“It complements our vision to build a commercial hub under-one-roof in the south Klang Valley that will cater to every lifestyle need through its varied retail mix. As this area currently lacks a one-stop commercial facility, we feel that Lava will fill the gap in the market for an integrated development of this nature,” he said.

The Lava is architecturally conceptualised and designed with the best “green” practices in mind, such as its lush, landscaped courtyard garden and energy-efficient features of the building’s roof canopy construction.

The roof canopy employs the use of high-grade moisture-resistant ceiling boards and polycarbonate sheets over roof openings to enhance natural ventilation.

“Our award-winning, environmentally-responsible development will promise high rental yields, as the building concept and design is unique to the Malaysian commercial property market,” said Khoo.

Formed in 1995 in Seremban, Tempo Properties’ portfolio encompasses projects like Taman Cengal Utama, Taman Prima Tropika, and Medan Suria.

For information on Tempo Properties Sdn Bhd, visit www.tempo.com.my

By The Star

Retailers can bid for KLIA2 space next year

SEPANG: Retailers interested to be part of the new KLIA2, slated to be open end of 2012, can bid for space through two open tenders next month and February next year.

Malaysia Airports Holdings Bhd (MAHB) senior general manager of commercial services Faizah Khairuddin said the tenders would be placed on MAHB website and major newpapers in early December and another one on February 15.

The tender for next month will be open from December 5 to 9.

"We will have the first batch in December and hope to get at least 20 to 30 per cent of the retailers then. The next one will be open in February after Chap Goh Meng celebrations," she said at a press conference after a preview on KLIA2 retail space here, yesterday.

Faizah said KLIA2 will not automatically take in the retailers from the present low cost carrier terminal.

"These retailers would also have to go through the open tender process like the rest," she said.

According to her, the tendering process will be done in two batches because of the holidays in between, including New Year and Chinese New Year.

The bidding process would take between four to six weeks.

"May the best man win and in this case, companies that are outcome-driven would likely be given a chance," she said.

Faizah said the whole tendering process would be completed next July, just in time for the airport's opening, scheduled by the end of next year.

The overall retail space up for grabs at the KLIA2 is 225 outlets with a total of 35200 sq m space.

One operator is allowed not more than five oulets.

"Out of this space, 95 per cent would be for commercial purposes while the rest for upcoming small and medium enterprises," she said.

On the commercial side, Faizah said 50 per cent would be for retail, 40 per cent for food and beverages, and the rest for services.

Retailers interested to bid for the retail space at the new airport, can can go to www.malaysiaairports.com.my or www.klia2.com.my.

By Business Times

Oversupply of retail and office space

KUALA LUMPUR: The Klang Valley will face an oversupply of office and retail space within the next two to three years, according to property consultancy CB Richard Ellis (M) Sdn Bhd.

Capital values for residential units would see some increases in 2012, but at slower rates compared with the past 18 months.

CB Richard Ellis executive chairman Christopher Boyd said while 2011 was a strong year in terms of demand for office space in the Klang Valley, rental values might succumb to an oversupply situation within the next 18 months.

“Short-term demand for office space is stable but unlikely to grow sharply,” he said at a talk entitled Kuala Lumpur Property Market In Times Of Uncertainty, which was organised by MIDF Research here yesterday.

Boyd said that total office space supply in the Klang Valley stood at 80.8 million sq ft at the end of the first half of 2011 (compared with 80 million sq ft at the end of 2010).

However, it was estimated that an additional 25 million sq ft of office space would come onstream in the Klang Valley by 2015 (excluding mega projects such as the Naza group's KL Metropolis development, Warisan Merdeka tower and the Kuala Lumpur International Financial District).

According to Boyd, vacancy rates in Kuala Lumpur are under 13%.

“This is not an alarming number, but vacancy rates are expected to increase as more supply comes onstream.” A report by CB Richard Ellis also noted that prime gross asking rentals were flat at RM7 per sq ft with only a handful of buildings above this level.

Since rising steadily from 2002 to 2008, rentals at top city centre buildings have remained mostly flat for the past two years.

“Asking rents at most top buildings in the city centre are within the RM6 to RM10 per sq ft per month range, with only a few select buildings, such as Petronas Tower 2 and Maxis Tower, achieving monthly rents of RM10 per sq ft and above,” said the report.

Boyd said recent average transaction prices of Grade A office space generally range between RM800 and RM900 per sq ft. “But there are higher prices than these being achieved in the market. We have recently seen prices of RM1,100 sq ft or more in Kuala Lumpur Sentral and SP Setia Bhd's KL Eco City.”

Meanwhile, CB Richard Ellis managing director Allan Soo said that the Klang Valley would overtake Singapore in terms of retail space per capita. Soo said as of the third quarter of 2011, total retail space supply in the Klang Valley was 43.7 million sq ft in 133 shopping centres and hypermarkets which was equivalent to 7.1 sq ft per capita (based on population of 6.1 million).

“This is higher than Bangkok, Thailand which stands at about 6.5 sq ft per capita, and equivalent to Singapore. However, it is a landlords' market in Singapore where malls are well connected by MRT (mass rapid transit) and are doing well. In the Klang Valley, it is the reverse - the tenants are the kings.”

Soo estimated that by 2014, the Klang Valley will have 53 million sq ft of retail space in 149 malls and hypermarkets.

However, Soo pointed out that only about 43 shopping centres and hypermarkets out of the existing 133 (or 30%) were performing well.

A report by CB Richard Ellis said the next rental review for established shopping centres would be in 2013 and rents may hit RM122 per sq ft. On residential property, Boyd said the pace of capital appreciation would slow in the next two years as new supply come onstream. In the condominium segment in Kuala Lumpur, total supply grew by 11% since end-2010 to 63,994 units in the first half of this year.

The supply figures included all projects with average prices of RM350 per sq ft and above.

While there had been a shift in buyers' preference towards smaller and more affordable units, Boyd said average asking rentals have declined in prime areas of Kuala Lumpur City Centre (KLCC) and Mont Kiara.

“In some cases in the KLCC area and and Mont Kiara, condominium rentals have halved in the last two years.” Rental rates in the three main condo markets (KLCC, Bangsar and Mont Kiara) on a per sq ft basis have declined since 2007, reflecting weaker demand for rental units coupled with increased supply.

Boyd also pointed out that new housing projects in the Klang Valley had begun to pick up in the first half of this year, with 15,030 units.

This is contrasted with a trend of falling incoming supply, new completions and housing projects in the Klang Valley since 2004.

From 2004 to 2007, there were new housing projects supplying more than 60,000 units each year.

However, the supply from new housing projects dipped to 41,583 units in 2008 and subsequently, between 22,000 and 25,000 in the following two years.

“The supply stream of new housing units fell in 2008. I do not think it was just the result of the global financial crisis. As building costs were rising sharply without selling prices coming up to match them, perhaps developers took the view they should hold back. And this contributed to the fast rising housing prices in the last two years.”

By The Star

Consider the rentability of an affordable commercial property

Although global sentiments remain weak for the moment, it is business as usual as developers move ahead with their property launches. In the Klang Valley in the next couple of months and even into the new year, developers will be offering apartments with small built-up areas.

These are essentially serviced apartments but developers prefer to call them by various other names.

Some of these names include the following - versatile office suites, small office home office (or Soho), lifestyle suites, small office versatile office or office suites. Whatever names they are called, all of them share several features.

These properties are built on commercial titles, not residential titles. Because they are on land with commercial title, utility charges will be 25% to 30% higher than if they were built on residential land. And because they are located on commercial land, developers offer that “office” component, hence the name small office, home office. Maintenance charges will also be higher compared with projects on residential titles.

A second feature they share is the built-up area. Most of these units are sized between 400sq ft and 600sq ft. Some may be as large as 800sq ft or even larger. Generally, however, they tend to hover around 500sq ft. Most of them will be one-room or studio apartments. Those with larger built-up areas may have two rooms.

One may ask, if they are so small, how can it be a home and an office at the same time? This goes back to the land title again.

The built-up of these properties are cut rather small because of high land cost. If the developer were to offer a three-bedroom apartment of about 1,200sq ft, these properties may be out of the reach of many. As it is, it is the smaller units which tend to sell faster.

A close scrutiny will show that most of these units are located in pretty urban or commercial areas which means there are conveniences close by. In the case of Section 13, Petaling Jaya, properties like Centrestage, which is currently being constructed, will be close to the Section 14 commercial area.

But besides Section 14, there are also the commercial areas of Section 17, Section 19 and SEA Park within a 10km radius.

The project will, therefore, leverage on the old commercial areas in the vicinity. Two blocks are being developed by Tetap Tiara Sdn Bhd, the developer who built the Jaya One commercial blocks located at the Jalan University-Jalan 13/6 corner. Other serviced apartment projects are being planned in Section 13.

Over in Ampang, Kuala Lumpur, serviced apartment projects are being planned in and around that area. The projects will leverage on the commercial areas in that locality. Developers are also featuring its proximity to the Petronas Twin Towers as a selling point.

Serviced apartments are also being launched in relatively new areas in and around the Klang Valley. This includes Empire City by the Subang-based Empire group. Empire City is located on 25 acres of commercial land opposite Damansara Perdana. Blocks of office towers, serviced apartments and a hotel will be located along the Lebuhraya Damansara-Puchong.

In Sri Damansara, TA Global Bhd will be having serviced apartments too. There will be other similar projects in Kota Damansara.

The proliferation of these 500 sq ft apartments is also as a result of the financial crisis. Developers have learned that smaller units are easier to rent and sell than a 2,500 sq ft unit. The many empty condominiums around the Petronas Twin Towers is an example. Most of the units there are 2,000sq ft and above. Now those who are planning projects there are building units under 2,000sq ft. By cutting the size small, these smaller units are also more affordable.

Here then is the catch. Buyers, fearing that property prices may go up further, are going for these smaller units with the hope to either flip sell them after completion, or to rent them out. But while developers are able to make their projects affordable, can they make them rentable?

Most of these small units are priced around RM500,000. At that price, they have tempted many into signing on the dotted line. But the buyer must also consider the fact that instead of one big 2,500sq ft unit, there are now five small units, which means there are now a large number of small apartments.

The density has increased. The higher the density, the longer it will take to rent out that unit, or to sell later on. Instead of one owner offering to rent or sell his 2,500 sq ft unit, a buyer is now competing with four others to rent, or to sell, their units.

So do not make a decision because you can afford that RM500,000 unit, but consider rentability and other factors that contribute to that rentability, like accessibility and the availability of basic amenities.

Assistant news editor Thean Lee Cheng suggests that potential investors consider rentability, and not just affordability.

By The Star

Record mall deals in Malaysia

Kuala Lumpur: The country's fascination with shopping malls have turned these properties into highly sought-after assets.

So far this year, the number of deals involving malls or retail assets has reached a record and there is a possibility that more could be announced this year, industry experts say.

At least nine deals valued at over RM2 billion have been reported in the first nine months of the year, stretching from the northern state of Penang to Johor in the south and from the west of Klang Valley to the eastern state of Pahang.

Improved consumer spending and liberalisation of the market has helped spur interest in retail assets.

As the global economic recovery continues to be shaky, Malaysia has turned to domestic demand to boost its economy, chief economist at Bank Islam Azrul Azwar Ahmad Tajudin said.

"Malaysian consumers have proven to be rather resilient even during times of crisis. During the 2009 recession, the economy contracted by 1.7 per cent but private consumption was still in positive territory," he added.

In year 2000, private consumption or consumer spending accounted for 43.8 per cent of the gross domestic product (GDP) while in 2010 the number surged to 53.3 per cent of GDP.

Azrul reckons private consumption will grow further to 54 per cent in 2011 and 54.6 per cent in 2012.

Malaysia Retailers Association has projected retail sales to grow 6 per cent this year, probably faster than the broader economic expansion seen at 5-6 per cent.

CB Richard Ellis (CBRE) Malaysia's managing director Allan Soo expects a few more deals this year.

"REITs (real estate investment trusts) tend to look for both yield accretion and steady income streams. Retail assets here have a great accretion opportunity at the moment.

"Passing yields at acquisitions are mostly at 7 per cent but for trophy assets this may be pressured down to below 6 per cent. The pressure on yields results in higher valuations, so on a per sq ft basis, malls are now seeing better valuation than about five years ago," Soo said.

At the same time, higher valuations have triggered previously less willing owners to part with their assets.

Another major factor was Malaysia's decision to scrap a rule that required foreign investors to have a 30 per cent Bumiputera partner.

In addition, the Securities Commission's endorsement of REITs as an investment alternative have also helped.

In January this year, CapitaMalls Malaysia Trusts (CMMT) said it would be buying The Gurney Plaza extension in Penang for RM215 million and in June it announced that it would be buying East Coast Mall for RM310 million.

In May, ARA Asia Dragon Fund won the bid for three shopping complexes - Klang Parade in Selangor, Ipoh Parade in Perak and Seremban Parade in Negri Sembilan. It paid some RM450 million to TMW Asia Property Fund, which had bought the malls for RM340 million in 2005.

Meanwhile, Adzman Shah Mohd Ariffin, founder of Hektar Property Services Sdn Bhd agreed that for some owners, a sale is actually part of their exit strategy to cash out.

"At the same time, foreign purchasers have found that the land/ownership law is more straightforward and properties in Malaysia are still cheaper than in other countries although at lower returns at times," he said.

This week, we also received news that Bandar Raya Developments Bhd (BRDB)'s major shareholder Ambang Sehati Sdn Bhd, controlled by its chairman Datuk Mohamed Moiz Jabir Mohamed Ali Moiz, had offered to buy three retail assets belonging to BRDB.

The properties are The Bangsar Shopping Centre (BSC), CapSquare Retail Centre in Kuala Lumpur, and Permas Jusco Mall in Johor.

BRDB is believed to have received many offers for its trophy asset - BSC.

By Business Times

Whither retail space?

Night view of the beautiful and unique Sunway Giza.

PROPERTY developers might have a problem filling their up-and-coming malls with prospective tenants given the shaky global economy and cautious consumer sentiment currently.

This situation is compounded by the fact that Malaysia has an oversupply of retail space.



“Retail supply is growing despite the economic slowdown. Developers in all parts of Malaysia are still planning and building shopping centres,” says Henry Butcher Retail managing director Tan Hai Hsin.


Tan: ‘Retail supply is growing despite the economic slowdown.’

According to him, total retail space for Klang Valley in 2010 is at 49 million sq ft. For this year, it is expected to increase by 3.5 million sq feet, with an expected 50 to 60 new shopping centres expected to be built in Malaysia.

“In general, there is an oversupply of retail space throughout the country,” he says, adding that the greatest challenge for shopping centres today is not about themes or concepts, but rather, market saturation.

“There is too much retail space chasing the same customers. For the last four years, new shopping centres in Malaysia are finding difficulty to fill up upon opening.”

Tan says that many shopping centres are also finding it difficult to get the right anchor tenants.

“Yet at the same time, many developers are still planning for shopping centres throughout the country,” he says.

According to the National Property Information Centre's (Napic) property market report 2010, the retail market continued to record substantial amount of take-up at 268,027 sq m (2009: 269,504 sq m).

With the exception of Kedah (-11,545 sq m) and Pahang (-11,349 sq m), all other states registered positive take-up. Kedah and Pahang registered negative take-up as both had anchor tenant exit from one of their shopping complexes.

Malacca had the highest take-up space of 92,880 sq m. Selangor and Johor trailed with 48,916 sq m and 34,977 sq m respectively.

The national occupancy rate reduced marginally to 80.2% compared with 81.5% achieved in the previous year. This was partially due to the lower occupancy rate attained by the new completions at 38.0% (2009: 55.9%).

Eight states achieved occupancy rates above the national average including Kuala Lumpur and Selangor. As at year-end 2010, the country had nearly 2.09 million sq m of space available for occupation.

Construction activity continued to soften as depicted by lower construction starts at -2.3% against 2009. There were 28 buildings from 11 states commencing construction with a combined retail space of 420,255 sq m. New building plan approvals decreased by 57.6% from 2009.

However, 2010 witnessed more completions against 2009. The completions were recorded in 13 states including Putrajaya. A total of 501,106 sq m of new retail space came on-stream, bringing up the country's total existing space to 10.59 million sq m.

Among the major completions were Malacca's Aeon Jaya Jusco, Econsave Hypermarket and Tesco Extra which offered a combined space of 74,152 sq m. Sabah saw the entrance of Suria Sabah in Kota Kinabalu, Mega Long in Penampang and Keningau Mall with a combined 72,516 sq m of retail space.

In Penang are 1st Avenue and Straits Quay Mall with a combined space of 126,026 sq m.

The future supply was ample with 94 complexes (1.73 million sq m) incoming and 65 complexes (1.65 million sq m) in the pipeline.


Fernandez does not expect prices to shoot up any time soon.

Khong & Jaafar Sdn Bhd managing director Elvin Fernandez says that despite the oversupply of retail space in Malaysia, average prime, ground floor rental rates of downtown shopping centres (namely Suria KLCC and Pavilion in Kuala Lumpur) and suburban shopping centres (Mid Valley in Kuala Lumpur, 1Utama and Sunway Pyramid in Selangor) have been holding steady.

He noted that even during the global economic crisis, rates remained fairly steady.

“Rent for average prime, ground floor space at downtown and suburban shopping centres are currently averaging RM50 to RM60 per sq ft and RM30 to RM35 per sq ft respectively.”

Fernandez says he does not expect prices to shoot up any time soon given the volatility of the global economy.

Stable consumer spending and good tourism levels have managed to help keep retail rates stable, he says.

Fernandez says that with the “summer” period over, the influx of tourists into Malaysia will decline in the coming months.



An analyst says the economic crises currently looming over the United States and Europe could affect tourist arrivals from that region.

“Their spending power will be curbed. For those who do have the money to travel, they may hold back on their long-distance travels,” he says.

Tan points out that the current world debt crisis is worrying and that it is affecting the Malaysian economy.

“Consumers' confident level is not high. Malaysian consumers are cautious in spending.”

Credit Suisse AG recently cut its real gross domestic product (GDP) 2011 growth forecast for Malaysia to 4.6% from 5.3%, in light of the West teetering on the brink of recession, especially with large parts of Asia remaining highly susceptible to growth developments in the United States and Europe.

Tan says consumer spending has also been curbed due to price inflation.

“Many things, from basic necessities to eating in restaurants, are more expensive than last year. But most of us are still earning the same salaries. We are paying more for the same things. Thus, we are buying fewer things than last year.

“Weak consumption will continue to slow down expansion plans of existing retailers and deter new retail entrepreneurs from entering the competitive market. This will, therefore, affect occupancy rate and rental growth of shopping centres.”

With the oversupply problem and cautious consumer sentiment, Tan says older malls would need to “refresh” themselves in order to compete better.

“They need to undertake refurbishments or even redevelopment. There are several examples. Ue3 turned into Viva Home with a higher occupancy rate. KL Plaza became the refreshing Farenheit 88. Other old shopping centres such as Atria and Jaya shopping centre are also now going for re-development.”

Tan says the local retail sector is still slated for positive growth this year.

“For the first quarter of 2011, the Malaysian retail industry recorded a moderate growth rate of 5.1% in sales compared with the same period in 2010. For the second quarter of this year, we are estimating retail industry to grow by 7%.

“For the whole year, we are projecting a growth rate of 6% or a sale value of RM81.6bil,” he says.

By The Star