Property expert warns that oversupply of retail space may mean mall owners will be unable to service their loans.
KUALA LUMPUR: A veteran property expert has voiced concern over the oversupply of retail space in the country, saying he especially feared repercussions on the banks that have given loans to shopping mall developers.
In an interview with FMT, Ernest Cheong said a number of malls, especially those not supported by large catchment populations, could find themselves in financial trouble.
“Established malls which are supported by huge catchment populations like Sunway Pyramid and One Utama will be okay,” he said. “But not all malls are located or being built in such areas.”
Last August, an article in 80 Quartier, citing data from the National Property Information Centre, said Malaysia had some 148.85 million square feet of retail space at the end of 2015, with an additional 18 million square feet either being developed or planned, mostly in the Klang Valley and Putrajaya.
It noted that the tenant occupancy rate had been falling by 2% to 3% every year since 2014.
With more shopping malls sprouting up in the Klang Valley, the effects of an oversupply of retail space and shrinking consumer purchasing power could be devastating, Cheong said.
“Take a look at areas like Kerinchi. You already have Mid Valley, which is very established and well connected. Despite the absence of a huge catchment population in the immediate area, there are new retail spaces being developed there.
“Where is all the demand going to come from? Some of the retail spaces in such areas as Bangsar South aren’t fully occupied.
“Similarly, there are many new malls in KL and Selangor with vacant lots.”
He said even if all ongoing shopping mall developments were stopped, it would still be a struggle for mall owners to get 100% occupancy.
He added that the situation would get worse with every increase in the cost of living.
“A conservative estimate would be that around 40 malls, especially the new ones, would run into financial difficulties because they won’t be able to sustain the loans they took.”
He said this could have a huge impact on the banking industry.
Cumulatively, he said, the loans taken by even 20 mall owners could run into billions of ringgit. “Can the banks sustain such heavy losses?”
He also spoke of an oversupply of office space and high-end residential units and gave a similar warning.
“During the 1997 economic crisis, when banks ran into trouble, the government could afford to bail them out,” he said. “I don’t think the government is able to do this today.”
The closure of malls as a result of the oversupply, he said, would rob many people of their jobs.
Last December, Malaysia Shopping Malls Association adviser Chan Hoi Choy told FMT the annual increase in the number of shopping malls was running into “double digits” and this was the biggest threat to the retail industry.
“Developers must be very careful about building new malls,” he said. “They must carry out thorough research to understand the demand and supply. There is an oversupply of malls and those which serve under-served markets are more likely to succeed.”
Source: Free Malaysia Today