KUCHING: The oversupply of retail space in terms of shopping malls has been a long-standing issue in Kuching, so much so that certain shopping malls see alarmingly low occupancy rates as well as visitors which lead to the question: How will they be able to cope?
In the past, Kuching’s retail sector has generally seen slow yet steady growth focused within the Golden Triangle vicinity in central Kuching, in addition to sparsely-spread malls throughout town to cater to neighbourhood needs.
In 2008, the city witnessed the completion of several sized shopping malls, according to local property group CH Williams, Talhar and Wong Sdn Bhd (WTW) in its Property Outlook 2008. The group even pegged this to be the “revival of the retail sector for Sarawak.”
The entrance of big players, tHe Spring and Boulevard, saw encouraging occupancy rates of more than 80 per cent alongside increasing business activity in that period. These were followed by smaller neighbourhood malls like Green Heights Mall and One TJ in the final quarter of 2008.
Meanwhile, two major developments announced in 2009 – namely CityOne and ST3 – signalled the optimism of local developers on the growth of the commercial market that year.
‘Worrisome’ figures
(SOURCE: WTW Property Report 2012)
In 2010, WTWY began to warn of the increasing number of retail complexes built in the last few years being ‘worrisome’ as the ‘existing retail sector is already showing unhealthy signs.’
“Even as new and more modern retail complexes are coming into the market, some older retail complexes in Kuching are not fairing well, with occupancy rates dropping significantly as they struggle to maintain their market share whilst the new complexes face delay in filling up their units,” it noted in the Property Outlook 2010.
This did not deter developers, however. The years 2011 and 2012 saw a slew of new retail projects coming into the market, especially in the sub-urban residential areas.
WTW noted prolific development of retail malls for 2012 with the completion of a few major malls: Kuching Sentral at the new Kuching transportation hub at 7th Mile Sentosa area, Boulevard expanding its shopping mall presence via Phase 2, and Plaza Merdeka within the old Kuching town area.
With only about three months left to the end of the year, the retail sector does not seem to be slowing down anytime soon, judging from the numerous commercial complexes currently underway.
Tenants jump ship?
The performance of these retail malls remain to be seen as competition increases. Tenancy renewals at some shopping malls have seen tenants opting out, leaving new vacant spaces for rent.
“There is some concern as to the performance of retail complexes with the big influx of retail space into the market within these few years and wariness as to whether the occupancy can be maintained especially when there is increasing competition between retail and basic needs such as food, housing, utilities and transportation which have experienced inflationary pressure,” highlighted WTWY in its latest note.
“The emergence of new shopping malls has also resulted in tenants opting out from older complexes into newer ones. The next few years will be a true test of the resilience of the retail market in Kuching.”
Retails prices are also getting competitive. For 2012, WTWY noted that retail rents were capped at RM20 per square feet, more or less with some actual rentals transacted at a lower rate due to the structuring of flexible rents based on revenue.
“Retail prices for new complexes launched this year in more outlying areas have not reached last year’s all-time high of RM2,400 per square feet. The rental yield is expected to remain between five and 5.5 per cent.”
Apart from maintaining tenants, these malls also need to worry about maintaining a high level of visitors with spending power. In order to do so, malls often come up with seasonal bazaars or festive mall designs.
No slowdown expected
Despite the oversupply, the boom in constructing retail malls does not seem to be slowing down. BizHive Weekly observed that within the past eight months, five new shopping malls have opened with four more currently under construction.
Competition is on the rise in terms of crowd attraction, locality and pricing as developers are still gunning for the construction of more malls.
BizHive Weekly talks to a few malls in Kuching as they continue efforts to stand out amongst the crowd.
Green Heights Mall
targets mother, child care sector
KUCHING: As one of the smaller neighbourhood malls, Green Heights Shopping Mall is putting itself ahead of competitors by tailoring a floor specifically to cater to the needs of mothers and children.
Opened in 2008, this shopping mall offers conveniences to the people that live in the vicinity. As such, it aims to obtain a tenant mix that is family friendly and can provide customers with everyday conveniences.
This led to anchor tenant being Cold Storage Supermarket, a reputable supermarket chain operated by KL based Dairy Farm Sdn Bhd, the only branch in Sarawak. Other prominent tenants include Guardian Pharmacy and Mady Organic & Natural Food Store.
Lately, the mall is changing its business model to enter a niche market, restructuring its tenant mix towards baby friendly stores after extensive survey and studies of the target market patronising the mall.
In view of the rapidly changing retail environment in Kuching, the mall plans to reposition the mall and refocus its tenant mix.
Green Heights Mall centre manager Sereni Linggi spoke to BizHive Weekly on this change.
“Taking into consideration the customers who already patronise our tenants such as Cold Storage, Guardian and Mady Organic & Natural Food Store, which has seen an increase in an average 40 per cent increase in revenue year on year, our plan is to focus on middle to upper income customers with families – especially those with young children,” she said during the interview.
“We see our tenant mix on the first level of Green Heights Mall comprising retail outlets catering to the needs of mothers, expectant mothers, babies and young children.
“Mady Organic has already increased their baby and kids range of organic food and products as they have seen an increase in their customers wanting to purchase products for their children.”
Despite the fact that there are such retail outlets in other malls, Sereni noted that the number of such shops combined in square footage in the other malls is small, and no shopping mall can be said to be strong in this category.
She strongly believed there was evergreen demand for mommy and child care products in Kuching, adding to the fact that parents are increasingly becoming more affluent and are increasing expenditure on baby and kids products.
“There is a definite baby boom in Kuching and parents are spending more on their children as there are more products available for babies and children now more than ever,” she opined.
“Plus, babies and children are continuously growing so parents need to make new purchases to cater to each stage of growth.
“At the moment, parents need to purchase various baby and child products at different malls. There is no mall in Kuching so far that is strong in this category and offers the convenience of shopping for children under one roof,” she affirmed, adding that this was a definite plus point for busy parents.
Green Heights Mall will be the first mall in Kuching to have multiple baby, kids and maternity stores conveniently on one floor, under one roof to cater to this growing segment of the market.
To do so, the mall offers a safe and practical environment for parents and their young families to shop at, with family friendly facilities such as baby changing rooms, tight security, well lit indoor parking as well as an indoor children’s playground.
“With 20,000 square feet of space catering to this group, we will become the location of choice for this market and we will dominate this category.”
At the moment, Sereni affirmed that no other mall in Kuching has this market cornered.
Speaking on Kuching’s oversupply of retail space, the Green Heights centre manager zoomed in on the oversupply of malls with the same stores.
“Kuching has a small population and would benefit more from a variety of stores rather than the same ones in different locations.
“Retailers opening in more than one mall should differentiate their stores in different locations according to the target market of the area.
“Be flexible and open to customer needs,” she advised.
When asked if entering a niche market business model, Sereni replied enthusiastically, “Absolutely! Being niche is the way to go when competing with larger shopping malls. We cannot compete with space so instead we choose to focus on a gap in the market.
“We have done our research and this is what parents want – A convenient, safe and clean shopping mall to shop at for and with their little ones.”
In order to cater for this target market, Green Heights Mall is looking for retailers with the following category of products and services: Maternity and baby Care products; baby food and health care products including toiletries; children’s and babies clothing, footwear and accessories; toys and educational products; baby carriages, car seats, bedding and furniture, and maternity clothing and other accessories.
“We would like to invite interested retailers to contact our leasing team about our exciting new focus. Take the plunge and do something different for Kuching. The market is ready and we are ready to provide both retailers and customers with a fresh new approach to kid friendly shopping!”
Plaza Merdeka
to inject more lifestyle choices
With a total net lettable area of 350,000 square feet, Plaza Merdeka has a good mix of retailers – with many opening pioneer outlets in Sarawak being a key point to make Plaza Merdeka stand out from other shopping malls in the city.
This was on top of Level Up Fitness Centre soon to be opened on the topmost floor of the mall, which will have a swimming pool with a panoramic view of the Sarawak river.
Since its opening in December last year, Plaza Merdeka has seen overwhelming responses from the public in its first month of operations.
“That was expected and gratifying to see because we spared no effort to ensure a coordinated opening,” outlined Plaza Merdeka Holdings Sdn Bhd managing director Steve Ng in an interview with BizHive Weekly. “We are very grateful for our tenants’ cooperation to achieve this.
“Since then, the crowd has been steady and building. As with any new location, it takes time to build up to maturity.”
BizHive Weekly observed the closing down of one or two stores in the mall, which Ng said was part and parcel of any mall’s experience.
“This is very normal in all malls especially in secondary markets,” he explained.
“Take tHe Spring Shopping Mall which we benchmark ourselves to – they also experience the same thing.
“The closings could be due to a number of factors, weak tenancies, unrealistic expectations, mall management and so on.
“The management of a mall needs to analyse this and work with the tenants. Everyone in this commercial relationship needs to understand that they need to build on each other.”
When asked on Plaza Merdeka’s lack of major entertainment hubs – such as a movie cineplex or a karaoke centre, both of which are popular amongst Kuchingites – will affect the mall, Ng strongly believed this was absolutely not necessary given its size and location.
“We have alternatives in a gaming center Fun Factor, and soon to come an indoor paintball gameroom,”Ng unveiled.
“Due to our unique location, we have other attractions in the planning and execution stage like the revival of the courthouse into a tourism center and food & beverage hub and the much anticipated covering of India St Pedestrian mall and linking this into Plaza Merdeka.
“Once this is done, the shopowners plan to open late and have a nightly ‘pasar malam’ feel to the street.”
The Level Up component was another strong crowd pull factor for Plaza Merdeka.
Ng highlighted that the idea is to build on its mutual strengths and imbue into the public a lifestyle choice: Work, then gym, dinner, shopping and then home.
“They will be commencing the renovations at the end of the year. They will open together with the hotel pool but would probably be before the hotel goes into full operations mid 2014.”
When asked on his thoughts on the industry here, Ng fully agreed that malls together with the plethora of shophouses seems saturated.
“However do take a look at markets like Kuala Lumpur of Klang Valley, Penang, Malacca and Kota Kinabalu.They have also an abundant supply of mall retail space. However take a look again and name me the ‘successful’ malls. How many are there?
“The successful ones have a lot in common and factors such as the right locality, size, retail mix, demographic mix all come to mind.
“What is the right formula? I may not have the answer and I believe very few malls can say that they can claim 100 per cent they have all those factors right,” he said.
“I can say that I am actively working on tweaking what we have, what we can add to this mix and with some luck we will achieve substantially the correct formula for Kuching.”
To address this matter, Ng said free competition will occur whereby the best players will end up on top of the pile.
“That’s the best thing for the consumer. It will force the mall owners to innovate and deliver a good product to the public.”
In concluding the interview, Ng outlined his team’s hard work on building the mix and also to ensure that its location remains relevant in the near future.
“At this point in time I can say only this, we have a major surprise in store for the readers but this I will leave to an appropriate time in the very near future.”
Other developments in Kuching
KUCHING: Looking at the other sectors in Kuching’s property development, CH Williams Talhar & Wong (WTW) noted surplus budget for 2013 to the tune of RM83 million Ww State Budget together with a higher-than-expected GDP growth of five per cent for 2013 (4.5 per cent for 2012) and an improved 10.5 per cent growth anticipated for the construction sector – spelling more construction activity in the state for the coming year.
With Sarawak earmarked as one of the nation’s main regional development areas under the current 10th Malaysia Plan, more funds are expected pour into the state to sustain continued development in all sectors.
“The Sarawak tourism sector has also experienced growth as indicated by an increase in hotel occupancy and room rates with four million visitors arrivals in Sarawak in 2012 compared to about 3.2 million in 2011,” WTW stated in the Property Market 2013 report.
“There is increased activity in the commercial shophouse sector especially in Kuching and Sibu with increased construction and prices reaching as high as RM1.5 million and RM1 million respectively for an intermediate shophouse unit.
“Even though housing has generally been overshadowed by commercial development activities in 2012, the residential sector remains the mainstay of the property industry.
“However, recent accelerated growth in property prices especially in housing, is a cause for worry that if allowed to continue without some form of control or check, housing affordability is likely to suffer.”
Kuching has also been deluged by the constant infrastructure works happening concurrently with the other property development projects such as the upgrading of Jalan Tun Jugah, construction of the Jalan Tun Jugah-Jalan Song flyover (a major thoroughfare in South East Kuching) to ease traffic flow and improve connectivity from the Kuching airport and the Kuching city centralised sewerage system project for efficient waste management.
Office Sector
Meanwhile, WTW noted that the purpose-built office sector for Kuching was rather quiet in 2012 with no new official launches or starts.
This was on the back of office rents remaining stable between RM2.50 to RM3 per square feet (sq ft) on average and yields for purpose built offices in Kuching remain at 5.5 per cent at most for prime areas.
The new office buildings are government owned and occupied so no new rental rates have been recorded.
“Most of the office buildings built in the last two years have yet to be fully occupied.
Office rents are likely to remain unchanged for 2013,” it added.
“Office values for 2012 are maintained at RM300 per sq ft. There was no purpose built office transaction recorded for 2012.
The office supply is expected to be stable with no unexpected jolts for 2013 and no large overhang.”
Industrial Sector
After the launch of The Sarawak Factory Wholesale Centre at Jalan Bako in 2011, there were few industrial projects launched in 2012.
“The price of industrial lots in Kuching is around RM50 per sq ft (at most) and rent yields for industrial units in Kuching remain at between five and six per cent.
“The Samajaya Free Trade Industrial Zone set up in the 1990s to boost foreign investments in hi-tech industries has been facing many hiccups, the latest of which is the restructuring of Sanmina-SCI which has laid off 800 of its workers.”
WTW went on to highlight no major changes expected in this sector for 2013, and pegged a rather conservative and stable outlook, with any major industrial developments guided and controlled by the State government.
“It is hoped that in the coming years, the activities and programs generated by the SCORE projects will eventually fuel more down-stream industries which could be located in Kuching.”