Steady retail outlook
Qector could however be weighed by prevailing headwinds
SINCE the reopening of international borders on April 1 and the resumption of all economic activities, the retail property market has been experiencing encouraging recovery in footfall and retail sales.
However, with rising inflation and slower economic growth, can this trend be sustained?
Sunway Malls and Theme Parks chief executive officer HC Chan says the prevailing headwinds from inflation and the possibility of a global recession are certainly going to weigh on the retail sector.
“However, because of Malaysia’s broad subsidisation policy, inflationary pressure is not as high as developed countries,” he tells Starbizweek.
Against an improvement in domestic economic activities, Chan forecasts that the second half of 2022 will continue to bode well for Sunway Malls.
According to him, sales recovery is projected to sustain at 115% and 107% in the third and fourth quarters of this year, respectively, for Sunway Malls.
“We expect to end the full year with 110%, which will be better than 2019 (pre-pandemic).
Chan says the replacement of outgoing, weak and ailing retailers with strong and vibrant ones with proven track records in driving footfall and higher per square feet sales, is expected to hold.
“The continued strong performance from these retailers is expected to sustain Sunway Malls’ performance moving forward,” he says.
Meanwhile, Knight Frank Research in its Malaysia Real Estate Highlights report for the first half of 2022, says there is newfound optimism with the country’s transition to the endemic phase.
“The resumption of all economic activities holds expectation for better employment opportunities and improvement in consumers’ disposable income. Moreover, following the interminable and unprecedented periods of lockdown, pent-up demand is anticipated to drive consumer spending.
Knight Frank says shopping malls have seen encouraging recovery in footfall and retail sales.
It however adds that rising inflation and slower economic growth following disruptive changes arising from the on-going Russia-ukraine war and supply chain bottleneck may cloud consumer sentiments and weigh on their purchasing power.
“Moving forward, rental growth is expected to remain subdued with growing pressure on overall occupancy level, due to the incoming supply of retail space as well as the lingering effects of the Covid-19 pandemic.”
Knight Frank says having an omnichannel strategy (integration between online and offline) remains vital for the survival of retailers, due to the shift in consumer shopping behaviour.
“Physical malls are re-configuring their space to offer more memorable experiences to maintain their appeal, while e-commerce players are expanding to brick-and-mortar, as seen through Grab’s acquisition of Jaya Grocer and Country Heights collaboration with Jd.com.”
Knight Frank says ecommerce is also entering a new era, where on-demand services are becoming significantly prominent.
“Pandemic-induced trends are here to stay, with consumers’ need for convenience, speed and safety remaining impelling motivators.
“As countries transition to a post-pandemic world, geopolitical tensions, climate-change related disasters, supply chain disruptions and rising inflationary pressure continue to pose unrelenting challenges to the retail sector.
“Locally, the sector is poised for a better year ahead following the reopening of the economy and international borders, coupled with the country’s high vaccination rate.”
Chan concurs that the re-opening of all economic sectors and borders, alongside the lifting of restrictions, has had a significant positive effect.
“For Sunway Malls, the sale recovery had been both resilient and accelerated. We enjoyed three consecutive quarters of sales normalisation of 100% and more since the fourth quarter of 2021.
“We had achieved our first quarter of 100% sales recovery against pre-pandemic levels in the fourth quarter of 2021 and repeated the feat in the first quarter of 2022.”
Chan adds that Sunway Malls’ second quarter 2022 sales recovery exceeded expectations and performed even better than pre-pandemic levels, at 122%.
“We expect that trend to continue for July 2022 with sales recovery at 118%. Hence, it will be 10 months of uninterrupted sales recovery at 100%,” he says.
Meanwhile, Knight Frank says there were no notable transactions of shopping centres during the first half of 2022.
“Occupancy rates have generally persisted while revenue of shopping mall owners is gradually improving due to lower rental rebates and discounts to tenants amid growing foot traffic.
“Footfall in selected shopping malls have recovered to pre-covid levels, following the country’s transition to the endemic phase on April 1.”
It noted that malls in Kuala Lumpur City, namely Suria KLCC and Pavilion Kuala Lumpur, commanded average monthly gross rentals of RM29 per sq ft and RM25 per sq ft (2020: RM33 per sq ft and RM26 per sq ft) respectively.
“The malls enjoyed commendable occupancies at 93% and 90.2% respectively.
“In the Kuala Lumpur fringe, Mid Valley Megamall and The Gardens Mall commanded average monthly gross rental at about RM13 per sq ft and RM12 per sq ft (2020: RM15 per sq ft and RM14 per sq ft) respectively.
“The occupancies of these malls remain high at circa 97.8% and 90.7% respectively.”
Knight Frank says Sunway Pyramid and The Mines in Selangor commanded average monthly gross rentals of RM9 per sq ft and RM4 per sq ft (2020: RM14 per sq ft and RM5 per sq ft) respectively.
“The malls have occupancies of 98% and 76.2% respectively,” it says.
According to Retail Group Malaysia (RGM) in its latest retail sector report, the retail industry recorded a growth rate of 18.3% in the first quarter of 2022, spurred by better economic conditions and further easing of movement restrictions. This is comparable to the minus 9.9% contraction in retail sales during the first quarter of 2021.
RGM said retailers are upbeat about their sales prospects for the second quarter of 2022.
The association is projecting an estimated retail sales growth of 25.7% for the second quarter of this year.
For the full-year 2022, RGM has revised its retail industry growth forecast upwards to 13.1% from 6.3%, due to the strong retail sales performance anticipated for the second quarter of this year.