Sabah's new malls compete with the old
Published on: Wednesday, December 30, 2015
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Kota Kinabalu: Property consultants say the 15pc increase in retail space in Kota Kinabalu over the past two years is justifiable.The increase in retail space has been about 7-8pc per annum over the past few years, which is believed to be in tandem with the growth in population, purchasing power and tourist arrivals.

A property consultant said this growth rate outstrips the projected 4.5-5pc growth in Sabah's economy for this years, fuelling fears of a glut in retail Net Lettable Area (NLA). However, he said, the sector is merely "catching up" after some 20 years of slow growth.

Datuk Kenneth Yen, Chairman of VPC Alliance (Sabah) Sdn Bhd, said apart from the retail pioneers – Wisma Merdeka, Centre Point Sabah and Karamunsing Complex – no new shopping malls have been built for some time.

"Finally, we now have some new, modern malls in the market such as Suria Sabah, Imago and Oceanus, bringing in international fashion labels and F&B franchises," Yen said.

He said new shopping malls need about two years to establish themselves. During its initial years, Suria Sabah failed to impress. However, it has since upped the ante to become one of the best-performing malls in the state capital.

Yen believes in about two years, foot traffic to Imago and Oceanus will increase as tenancy mix stabilises and a wider variety of tenancy comprising a good mix of F&B, fashion and entertainment is established.

He stressed that in order to attract shoppers, malls must provide an experiential shopping environment. "Right now people walk in to Imago and Oceanus because they are curious. But when it come to shopping they prefer to head to more established malls where everything is under one roof. Nobody wants to hop from one mall to another," Yen reasoned.

At present, rental rates are about RM20 per sq ft for prime space such as the ground floor atrium lots in Wisma Merdeka, while other lots fetch half the rate at RM10 per sq ft, or less. The upper floor units are cheaper at RM6-8 per sq ft, while the smaller units command a high rental of RM20 per sq ft.

Yen believes malls located in the city area will flourish but he is not as optimistic over the sustainability of malls in the suburbs.

Malls in the city centre cater to a resident population of about 400,000, a result of the urban sprawl of Likas, Penampang and Putatan. Coupled with tourists and business travellers, this catchment area is estimated to have an annual retail spending potential of RM1.38 bil.

Kota Kinabalu is projected to hit tourist receipts of RM7.38 bil from targeted arrivals of 3.7 million this year.

Estimating China tourist arrivals alone, Yen's back-of-the-envelope calculations suggest about 800 Chinese land each day from eight direct flight between major towns in China and Kota Kinabalu.

Assuming they stay three to five days, we have about 3,000 Chinese tourists walking around Kota Kinabalu or holidaying in the surrounding island resorts at any given time," he elaborates.

Yen adds that in the heyday of Chinese tourist arrivals, prior to the MH370 incident, traditional high-street shops in Jalan Gaya selling seafood products and traditional Chinese medicinal products could command a rental of up RM15,000 a month.

"Such days are returning. Chinese tourists buy a lot of the local cosmetics, bird's net and dry seafood as the products are cheap and they are assured that they are original and of good quality," Yen informs.

Cornelius Koh of CH Williams Talhar & Wong echoes Yen's fears. He believes that malls in the centre business district (CBD) will be sustainable owing to a brisk tourist market, but he doubts those located in the outskirts and catchment areas many not be.

"With household debt standing at 88pc, people are just not spending money as their resources are tied up. Cost of living is also rising and people are struggling to make ends meet," he says.

Koh explains that the local retail industry has an approximate 60:40 dependency on local buyers as oppose to tourist.

He notes that business in Oceanus is a little quiet at present as it is not fully tenanted. He says the absence of a full spectrum of lifestyle needs such as variety and choices in food & beverage, and cinema or other entertainment options sends foot traffic to nearby malls.

"If people have more choices in nearby malls, they would prefer to go there so everything is under one roof. Malls with fewer things to do generally get fewer visitors," Koh explains, adding he is confident business at Oceanus and Imago will pick up in about a year.

He said Sabah is blessed with many attractions and economic spinners but has run into a spate of unfavourable occurrences such as earthquake and kidnappings. Nevertheless, he believes these are temporary setbacks and the outlook is stable.

"The economy may not grow much but it will sustain the momentum. It may take time for the retail sector to pick up, but it will happen. The lower currency value right now is pull factor too," he adds.

Developing suburban malls is a natural growth progression given the level of saturation of retail space in the city at present, says Chew Fei Sean, property development manager of Grand Merdeka Development.

Citing the development in the Klang Valley, Chew points out that mall development naturally begins in the city centre to capture local and tourist markets.

However, as the level of saturation increases, entrepreneurial development towards suburban areas.

"Development brings increased traffic congestion and expensive parking. People will be happy to have as much fun nearer to home. No traffic woes, travel costs less," she said.

Chew adds that urban sprawl makes suburban malls more accessible and widens the catchment area. GM Mall, for instance, a flagship project of Grand Merdeka along the Tuaran bypass intends to capture the niche market in the suburbs, moving away from direct competitors in the city centre.

She believes mall operators must first embrace the changes in the market trend of shopping, whereby the focus now is on the experience, not merely the labels and variety. Malls must have regular events and promotions to attract people, apart from the right tenant mix.

"The Gen Ys and Zs are very influential and play a big role in buying decisions and mall choice. Mall operators must take into account what appeals to them," she notes.

Citing Grand Merdeka's strategy in developing GM Mall, Chew says the invent is to capture the catchment area in the township of Menggatal, Telipok and users of Jalan Tuaran.

"Before developers build a mall, they must study the catchment area. GM has done such a study. We have looked at the future prospects, value of property in the surrounding areas and income ability of the people.

"Homes in the area are about RM400,000 - 500,000 which are not affluent but affordable, so we have to carter to residents' needs," Chew elaborates.

At 270,000 sq ft of NLA, she says GM Mall is not big, so careful planning of tenant mix is crucial and it must meet the needs of the catchment area.

GM Mall has secured 30pc tenancy of its anchor tenants, which include an amusement park and Grand Merdeka's own cinema brand, GM cinema. Chew stresses that the management is seeking out household brand which appeals to its target market such as Tong Enterprise, Upperstar and AA Stationery.

"Even with our entrepreneurial units, we are focusing on a tenant mix of local content, featuring household brands that our target market is familiar with and most importantly, can afford," she says.

GM Mall is a partially strata mall, with developer Grand Merdeka holding the larger lots amounting to about 60pc of the NLA. It is scheduled for completion at the end of next year.

Acknowledging the tough economic climate, Chew says the management is helping buyers "match-mate" tenants and negotiate tenancy terms. Proposed tenancy incentives include lower rental rates for the first two years and waiver of full deposit at tenancy commencement.

"We are a greenfield mall and not a big brand so we must be competitive in terms of price and innovative with tenancy packages," she explains.

Prices in Kota Kinabalu are about 11pc higher than in Kuala Lumpur while the people's purchasing power is less than half that of their counterparts in the affluent capital city, one observer says.

The 20-odd malls in Kota Kinabalu currently translate to a net lettable area of about nine million sq ft, triggering fears of how the incoming supply will find sufficient foot traffic and sales turnover as the products and services offered are fairly homogenous, according to reported statistics.

Nevertheless, Kota Kinabalu did emerge as the third most lucrative market in terms of retailers' turnover, indicating huge potential as its retail density is barely comparable to the Klang Valley and Penang, the first- and second-place winners respectively.

The population density of Greater KK, which comprises Kota Kinabalu and developed areas of Penampang and Putatan, is only 816 people per sq km, while the Klang Valley and Penang have a population density of 6,891 and 2, 372 people per sq km, respectively.

Among upcoming developments with retail elements are PacifiCity by Pacific Sanctuary Holdings Sdn Bhd, Aeropod by SP Setia Bhd, Sutra Avenue by Mah Sing group, GM Mall by Grand Merdeka, International Technology & Commercial Centre (ITCC) in Penampang by Sabahnilam Enterprise Sdn Bhd, City Point shopping mall and hotel by Kinsabina Croup of Companies and Skycity and 360 Boulevard project by Homesign Network Sdn Bhd.

Market observers have noted that many of the planned development projects in Kota Kinabalu are in choppy waters or have been delayed several times for various reasons.

One such business is Datuk Raymond Chan's 1 Sulaman by Sagajuta (Sabah) Sdn Bhd, which is about 90pc completed. The project was initially slated for completion in 2012 but later re-scheduled to mid-this year.

There were recent reports of buyers threatening to file a legal suit over the delays. Sources say Chan is believed to be in negotiations of the project and overcome the various allgation levelled against the company.

The 1 Sulaman project, located in Jalan Sulaman, was planned with a water theme park, musical fountain, five-star club house, commercial retail lots and 2,058 residential units. The project has an estimated gross development value (GDV) of RM520 mil.

In 2012, Sagajuta and 1 Green Enviro Sdn Bhd entered into a related-party transaction with Harvest Court Development Sdn Bhd for the latter to build a 28-storey medium-cost apartment, eight units of two-storey shop offices, common facilities and a five-level car park under the 1 Sulaman project and for two phases of a proposed mixed development called 1 Likas in Teluk Likas.

At the time of transaction, Chan and Mohd Nazifuddin Mohd Najib Razak, were directors and shareholders of Sagajuta 1 Green Enviro and Harvest Court.

Another project of interest is Star City Shopping Mall by AC Property Development Sdn Bhd, jointly developed with Sabah Urban Development Corp Sdn Bhd and Sabah Economic Development Corp Sdn Bhd.

The project was halted in 2009 following the winding-up of the developer with amount due to the tune of RM70 mil. It was scheduled for completion in 2012.

Sources says the project will be resuscitated as negotiations are under way to bring in a new foreign partner, believed to be Hong Kong developer.

PacifiCity, previously planned as KK Mega Mall, was twice abandoned before being taken over by KP Kuok of Pacipic Sanctuary Holdings Sdn Bhd, a nephew of tycoon Robert Kuok.

The Jesselton Quay project, a joint venture between landowners, Suria Capital Holdings Bhd and developer SBC Corp Bhd, also ran into delays due to regulatory issues.


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