Growth of retail sector depends on balance in demand and supply of retail space

IT might be the year of the dragon – a Chinese astrological symbol that is said to be synonymous with power and good fortune – but for property developers of new shopping malls in the country, the ongoing uncertainty in the global economy and oversupply of retail space might just douse their burning business plans.

Tan: ‘When export-oriented manufacturing sector slows down due to low external demand, it will affect local employment market and retail spending.’

According to Henry Butcher Retail managing director Tan Hai Hsin, about 10 new shopping malls are expected to be opened this year in the Klang Valley alone.

“The total retail space for Klang Valley in 2011 was more than 52 million sq ft. For this year, it is expected to increase by at least 3.5 million sq ft, he tells StarBizWeek.

“This sub-sector is growing, based on the number of new shopping centres that will be completed. However, it will be a challenge to fill up all the retail shops upon opening. It will take them at least a year to do so.”

Tan says the growth of this sub-sector is highly dependent on consumers’ spending power this year.

Elvin: ‘Lenders and regulators should continuously insist on detailed market and feasibility studies and updates of those studies from time to time.’

Khong & Jaafar Sdn Bhd managing director Elvin Fernandez points out that this sub-sector was relatively strong in 2011 and will likely continue to be strong based on continued robust consumer spending and support from tourism spending.

“Despite the global turmoil, consumer spending has not slowed down. Oversupply for the retail sector is usually less of a concern because owners or developers usually do a lot of pre-development research and planning before bringing a shopping centre into the market.

“However, it is still important for more information flow through the media to ensure that the numbers hitting the market are known by all – investors, developers, regulators and the general public and this critical flow of information in itself helps to balance supply and demand.”

Elvin says that there are “shadows of looming oversupply” in the next two to five years as more of the bigger property projects, many of them under the Economic Transformation Programme (ETP), get under way.

“Lenders and regulators should continuously insist on detailed market and feasibility studies and updates of those studies from time to time and not dispense with them for reasons of cost.

“They must also be perused by the user of the reports and not done just as a matter to satisfy compliance,” he says.

Elvin adds that in the retail industry, a shopping centre maintains its attractiveness by sustained astute mall management over a long period of time.

“Location is important but it is not everything. Mall management is more important. Positioning the mall, (having) the right tenant mix and the myriad of small details count in drawing shoppers in.”

Tan reckons that the success of a shopping mall is not location-specific but, project-specific.

“For example, Suria KLCC, Mid Valley Megamall, Pavilion KL, Plaza Sungei Wang, Berjaya Times Square, One Utama, Sunway Pyramid and a few more will remain as popular shopping centres in Klang Valley.

“At the same time, shopping centres that have been suffering from low shopping traffic will continue to face challenges in attracting crowds,” he says.

Tan says that there is still a clear disparity between success and failure.

“Popular shopping centres throughout the country continue to attract shoppers and quality tenants despite intense retail competition and weak economy. On the other hand, poorly occupied shopping centres continue to suffer.

“Last year, some shopping centres were giving long rent-free period to their retailers,” he says.

According to Tan, average rental growth for Klang Valley shopping-centre market should be not more than 5% this year.

“Average occupancy rate for Klang Valley shopping centres should remain at around 85%,” he says.

Elvin says the continued economic growth will underlie the growth of the retail sector.

“Will the global economy sink further? The European sovereign debt crisis continues and there is sluggish economic growth in the US despite a prolonged period of pump-priming.

“Will China and India slow down, although inflation in both countries is abating, which will allow them to stimulate further their economies.

Elvin notes that with Malaysia being an open economy and dependent on exports, he says that “it would not look good for us” if the global economy does not recover.

“The economy will have knock-on effects on the property market and may affect consumer spending.

“The authorities are also trying to slow or bring down household debt and this may crimp to an extent consumer spending. On the positive side, the rollout of the ETP projects may add buoyancy to consumer spending and this may also be an election year, which usually results in increased activity and spending.”

Tan concurs that the unresolved eurozone debt crisis, the potential US double dip recession and the recent decline in China export market will affect the Malaysian economy in 2012.

“When export-oriented manufacturing sector slows down due to low external demand, it will affect local employment market. Some Malaysians may be out of jobs this year, many will not get salary increments and graduates will not be able to find jobs. All these will affect retail spending.

“In addition, the uncertain world economy will indirectly lead to Malaysian consumers being cautious in their spending because they are worrying about their future job prospects. They will wait for a sale before they buy. They will look out for value-for-money promotions.”

Tan notes however that the 1.2 million government servants that were given salary increment and bonus recently will boost consumer spending.

“RM100 cash for the purchase of school books and related items has been given out to each student from standard one to form five in Malaysia. A one-off RM500 has also been given out in phases to families with income of less than RM3,000 per month.

“These will boost retail spending to a certain extent this year.”

According to the Valuation and Property Services Department’s Property Market Report for the first half of 2011, the retail market recorded substantially increased take-up space of 258,462 sq meters during the period.

All states except Kelantan recorded positive take-up, with Kuala Lumpur leading the take-up with 54,653 sq meters.

“As at end-June 2011, the country has nearly 2.05 million sq meters of space available for occupation,” the report said.

On the construction front, there were 15 completions in the first half of 2011 with 191,078 sq meters of new retail space entering the market, bringing up the country’s total existing space to 10.78 million sq meters.

The report also said rentals in shopping complexes in most states were generally stable in the first half of 2011.

It said rentals of retail space of shopping complexes in Kuala Lumpur were largely stable with isolated movements recorded in few buildings.

“Suria KLCC obtained premium rentals at RM592 to RM753 per sq meter for its lower ground floor units while retail units in KL Pavilion breached more than RM1,000 per sq meter.

“Bukit Bintang Plaza recorded a double digit increase of 11.5% for its ground floor units but those in the lower ground and second floor recorded slight decreases of 3.6% and 3.0% respectively.”

In Selangor, it was disclosed that rentals of retail space in shopping complexes were also stable with increases recorded in selected buildings.

“The Curve saw the rental of its ground and first floor units increased by 12.4% to 36.6% due to rental review, with rentals ranging from RM79.11 per sq meter to RM114.74 per sq meter.

“Rental in AEON Taman Equine recorded gains of 4.5% to 11.8% while AEON Bukit Tinggi in Klang saw higher gains of 7.6% to 40.0% in the review period. However, there were slight declines of 2.8% to 3.6% in the latter for its second floor units,” said the report.

By The Star

PETALING JAYA: SP Setia Bhd rose six sen, or 1.5%, to close at RM3.94, its highest level in almost six months and one sen short of the revised offer price jointly proposed by its president and chief executive officer Tan Sri Liew Kee Sin and Permodalan Nasional Bhd (PNB).

Meanwhile, analysts have hailed the revised takeover offer as a “win-win” deal for all parties as it would enable Liew to stay at the helm of the property developer with full control over the next three years.

“This is close to our best-case scenario where there is incentive for top management to stay on and take SP Setia to greater heights. It is a win-win situation for all parties and a share price catalyst,” CIMB Research analyst Terence Wong said in a note to clients.

Liew’s commitment to stay on in SP Setia has been viewed positively by analysts.

SP Setia had on Friday notified Bursa Malaysia about the revised offer, which raised the offer price by five sen each for the shares and warrants to RM3.95 and 96 sen, respectively.

Liew, PNB and SP Setia would also enter into a management agreement for Liew to remain in his current position for three years following the close of the revised offer.

Among others, Liew would continue to oversee and manage the operations of SP Setia within the ordinary course of its business and enter into contracts or arrangements for and on behalf of the company.

As a joint offeror, Liew is not allowed to sell his 8.6% direct shareholding of 158.2 million shares, or 8.6% stake, in SP Setia, but he would be given a put option to sell the shares to PNB in tranches over three years at an exercise price of RM3.95.

Under the terms of the put option, Liew can choose to sell his stake to PNB at RM3.95 or in the open market at the then prevailing market price, which thus acts as an incentive for him to continue to grow the value of the company.

However, Liew's wife, who has a 2.3% stake in SP Setia, will be accepting the revised offer.

PNB and its related parties currently hold 38.6% of SP Setia while Liew has a direct and indirect stake of 10.9%, which adds up to a combined 49.5% interest.

“We view positively Tan Sri's (Liew) commitment to stay on and retain his direct stake without getting any premium even though he will only be allowed to exercise the put option gradually over three years.

“This signals his commitment and confidence that he can take SP Setia to the next level and add value to the company and share price,” CIMB Research said.

Kenanga Research said in a report that the slightly higher offer price is a show of good faith to minority shareholders, adding that SP Setia would have more bargaining chips to bid for government land with the backing of a shareholder like PNB.

As PNB intends to retain the company's listing status, RHB Research Institute noted that post-takeover, the joint offerrors might have to pare down their stakes via a placement exercise to maintain the stock's mandatory 25% free float.

Kenanga Research said investors with a 12-month view should accept the revised offer as there might be cheaper entry points when the stock succumbed to an expected downtrend in the property sector. However, it said longer-term shareholders might want to stay invested as liquidity could tighten up in the future, preventing substantial accumulation.

By The Star

With a higher buyout offer in place and an assurance that its chief Tan Sri Liew Kee Sin will continue to helm the company, SP Setia Bhd's stock climbed to an almost six-month high yesterday.

State investor Permodalan Nasional Bhd (PNB) roped in Liew as a joint bidder and improved on its last September solo bid of RM3.90 a share for the property developer last Friday.

The joint bidders are now offering RM3.95 for each SP Setia share and 96 sen for each warrant, instead of 91 sen before.

The stock rose by 1.5 per cent to close at RM3.94 yesterday, off an intra-day high of RM3.97.

Analysts from RHB Research Institute and MIDF Research said the offer was "fair" and advised minority shareholders to accept it.

Both raised their target price for SP Setia to RM3.95 to match the offer price.

"The revised offer will be a win-win situation for both parties as PNB could leverage on Liew's expertise in the running of SP Setia while SP Setia will have the backing of a strong shareholder," MIDF said in a note to clients yesterday.

HwangDBS Vickers Research, meanwhile, raised its target price to RM4.50 from RM3.90 and said investors were better off holding on to the shares given that there will be management continuity for three years.

Under the new deal, Liew will keep his 8.56 per cent stake in SP Setia and remain as its group president and chief executive officer for three years, during which he will have sole responsibility for the mana-gement and general conduct of the business.

No changes will be made to the board, and PNB will keep its two board seats.

"We welcome this news as it removes uncertainty over the future of SP Setia, particularly with regard to Liew's involvement," Hong Leong Investment Bank Bhd (HLIB) .

With PNB's backing, analysts believe SP Setia stands an even better chance when bidding for government land parcels.

MIDF Research said the offer is fair given the current uncertainty in the world economy and the normalising growth rate of the property sector.

"From last week's briefing, Liew indicated that SP Setia is soon signing the Bangsar land deal, which is estimated to yield a gross development value of RM10 billion.

"However, in the near term, outlook for the overall property sector will still be rather challenging, and we thus advise investors to accept the offer," RHB Research said.

The deal is expected to be completed by end-March.

By Business Times

Facelift: The group has spent RM10mil to restore the heritage structure and a further RM3.5mil to transform St.Joseph’s Novitiate building in Gurney Paragon, now known as St. Jo’s, into a new dining and entertainment hub in Penang.

GEORGE TOWN: Hunza Properties Bhd is launching about RM650mil of residential properties in Kepala Batas in Seberang Prai and Tanjung Bungah on Penang island this year.

Group executive chairman Datuk Khor Teng Tong told StarBiz that residential properties worth about RM300mil in gross development value (GDV), comprising double-storey semi-detached, terraced, and low-medium cost houses, had been planned for Kepala Batas.

“We have already started work on the houses and will launch the properties for sale in the second half of 2012,” Khor said. “After the launch, the group will still have about 350 acres of undeveloped land-bank in Kepala Batas, which will be used for residential development.”

In Tanjung Bungah, Khor said the group would launch Alila 2, a 265-unit condominium project, in the second half of this year. It would have a GDV of about RM350mil.

“The condominium units will have built-up areas ranging from 1,700 to 3,000 sq ft,” he said.

On the group's proposed mixed-development project with an approximate GDV of RM6bil to RM7bil on a 16.2ha site in Bayan Baru, Khor said the group had engaged two internationally renowned architect consultants to advise on the master plan.

He said the group had just acquired a 2ha land to develop 1,000 low-cost homes for the households currently occupying the over 16.2ha site. “We have initiated steps to obtain approval from the local authorities to develop the low-cost homes.”

Khor also said the group was targeting to complete the Gurney Paragon shopping mall in November 2012.

“So far we have committed to lease out about 45% of the over 700,000 sq ft of nettable area of the shopping mall,” he said.

On the preservation of St. Joseph's Novitiate building in Gurney Paragon, now known as St. Jo's, Khor said the group had spent RM10mil to restore the heritage structure and a further RM3.5mil to transform it into a new dining and entertainment hub in Penang.

“Hunza will work hard to continue to bring in established names that have yet to set up a presence in Penang to open their businesses in Gurney Paragon,” he said.

Khor said the multi-purpose hall of St. Jo's would be used for hosting events such as meetings, conventions, and weddings.

St. Jo's was completed and formally opened in 1918 by the De La Salle Brothers, who pioneered education in Malaysia and around the world.

By The Star