PETALING JAYA: The Klang Valley will see eight new malls opening this year, adding 3.4 million sq ft of net lettable area (NLA) to an already saturated market.
Other cities such as George Town and Johor Bharu will see the addition of 1.33 million sq ft of NLA this year.
Ironically, this comes at a time when e-commerce is booming, and occupancy at malls is falling. In recently opened malls, the occupancy rate has yet to breach the 50% mark.
Experts agree that the oversupply of NLA was already apparent a decade ago, especially in the Klang Valley. Yet developers ignored the signs.
This only led to lower occupancy rates and market cannibalisation, a process to weed out weaker players.
This begs the question: Why are more shopping malls being built?
After all, building a mall is a big undertaking and, as far as Malaysian Malls Association president Teo Chiang Kok is concerned, no developer will do so without prior research and planning.
It takes three to four years to plan, obtain approval and construct a mall, by which time market conditions may have changed, Teo told FMT Business.
Yet, developers continue to take the risk. Last year, seven new malls were opened in the Klang Valley alone, adding 2.73 million sq ft of NLA to the market.
What can we do about it?
The pandemic has led to an increase in the number of vacant lots in malls, and owners are offering to lower rentals to fill them. However, this is not a long-term solution.
Rental rates vary but they average about RM15 per sq ft. An average retail store occupies about 1,000 sq ft, so rent alone will cost the business RM15,000 a month.
This additional cost is passed on to the consumer though not all will be willing to pay the extra just for the air-conditioning.
For a mall to attract foot traffic and tenants, marketing and promotion are essential, according to property valuation expert Mani Usilappan.
“Malls have become places for people to gather socially,” Mani told FMT Business.
He said marketing and promotional efforts such as “live” acts at the mall would draw visitors, and with higher foot traffic, businesses would be more likely to set up shop there.
He said branding is also important. “It is the biggest draw for malls, but to attract the good brands, location is extremely important,” he said.
He added that there should not be too many malls close to each other. “Don’t place them too close together to ensure all survive,” he said.
Mani also advised against building strata malls, where all lots are owned individually.
“Strata malls are more utilitarian but they fail because there is no control over marketing and promotion efforts,” he added.
Teo said it should also be left to market forces to deal with an oversupply of floor space. “Any interference in the market will only cause distortion and result in inefficiency,” he said.
He believes that there still is room for more malls despite an oversupply in selected localities. “Everything will eventually balance out with population growth and change of use in some malls,” he added.
Taking care of the small guys
With more mega size malls opening, there is concern that the medium size ones will lose out, especially when they are located close to each other.
However, experts argue that the smaller malls could find their own niche.
Teo said all malls would have their own purpose, regardless of size, and big and small ones could do equally well in their own catchment areas.
Mani said that just like retail outlets, malls would also have to find their own niches and offer personalised services.
“The rise of convenience stores has also worsened the situation for malls. This could be part of the evolution of old-style high street shoplots into boutique eateries, offices and business outlets,” he added.