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Shopping Centers Today -> November 1999
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Malling Asia
Continent's largest center coming to Malaysia
By Susan Thorne
The Megamall in Kuala Lumpur, set to open this month. |
Mid Valley, a leading Malaysian shopping center developer, had done its homework in terms of market research and planned an innovative mix of entertainment, retail and food at varying price points to appeal to Malaysian shoppers and tourists.
The mall's postmodern design called for an undulating roof over an oblong five-story retail complex, with color-coordinated office and hotel towers around the perimeter. The location in the city's central business district was strategically sited near major highways and public transport links, and included 6,500 parking spaces. By mid-1997, the center was 50% leased, with three big-name international anchors signed up: French hypermarket retailer Carrefour; Jaya Jusco, a Japanese mass merchant; and Metrojaya, Malaysia's own superstore chain, each committed to flagship stores of at least 200,000 square feet. In shopping-crazy Kuala Lumpur, where a growing middle class was generating heavy demand for modern retail, the megamall looked like a project with a secure future.
But times change, and as the Megamall in Kuala Lumpur prepares to open its doors on Nov. 18, the picture is less rosy. The Asia-wide financial crisis, which began to hit the region in the summer of 1997, has brought recession and financial uncertainty to Malaysia, and caused the ringgit, the national currency, to decline sharply in value. At the same time, retail construction is increasing, although consumer spending has been adversely affected by the economic upheaval. The supply of retail space in Kuala Lumpur, which stood at 10.4 million square feet at the end of 1997, grew by more than 20% last year with the addition of 2.43 million square feet, according to The Edge, a real estate publication that surveys property values in Malaysia and Singapore. Another 9.4 million square feet of retail space is now under construction, the same source says, with a further 9 million in the pipeline at various stages in this city of around 6 million inhabitants.
"While the economic crisis was of great importance to us, it did not materially affect our overall mission and objectives. " —
M.K. Sen, managing director, |
Retail values have been greatly affected. Sunny Lae, a partner with locally based Jones Lang Wootton chartered surveyors and property consultants, said that since reaching a peak in 1996, retail properties in Kuala Lumpur have declined in value by an average of 40%, and rental rates by around 35%. Vacancy rates in some less desirable, poorly located shopping centers are as high as 50% to 55%, he indicated. Yet there is a tremendous range of rental rates in the capital: High-end retail properties such as the upscale shops in Suria KLCC (Kuala Lumpur City Center at the foot of the famous Petronas Towers, the world's tallest building) can command up to $38 per square meter (around $380 per square foot); but low-end stores in underperforming malls (not counting anchors) may pay as little as $4 per square meter, Lae pointed out.
Taking financial stock
When the economic crisis hit the region in June and July 1997, Mid Valley was forced to take stock and assess its financial ability to carry through the project.
M. K. Sen, the company's managing director, said that in consultation with tenants and Kuala Lumpur City Hall, which is a joint partner, it was decided to postpone the megamall's opening by a year, to the last quarter of 1999. Sen said he sees this step in positive terms.
"While the economic crisis was of great importance to us, it did not materially affect our overall mission and objectives," he said.
"The additional time span we had for the project reduced our technical and administrative pressures on the completion date."
Occupancy of the available retail space is anticipated to be 70% on opening day, and tenants to date include Asian leaders such as Golden Screens cinema, which is opening an 18-theater multiplex, and British India, a midpriced apparel chain. Tenants that open for business at launch time will operate rent-free for the first six weeks, and the center also is setting up online retail capabilities for all merchants to encourage them to market themselves over the Web.
Sen is sanguine about economic upheavals, pointing out that Mid Valley has weathered two other recent recessions. He said he is encouraged by government action to correct economic problems, such as the controls which have brought lending rates down from 15% to today's level of 9% in less than two years.
The Malaysian government has the stated objective of making the country a regional and worldwide tourist shopping destination, he said, and predicts that retailers will see relaxation of duties on a wide variety of imported consumer items as part of this policy. A waiver of taxes on leather imports has already been implemented this year.
The competition
On the question of competition, Sen said his company is conscious of the many retail outlets already built or planned for the Klang Valley (Kuala Lumpur area) over the next few years. But he appears to find competition less of a threat than the recession.
"If we can withstand the present economic crisis, then the long term prospects are overwhelmingly in our favor, given our superior location, infrastructure and critical mass in quality and extent of merchandise, amongst several other key elements," he said.
Lae is also optimistic, while acknowledging that it's risky to build more retail space these days.
One key strength of the megamall is its winning location, he said — "at the hub of a huge suburban area but close enough for city shoppers."
Lae said leasing at the Megamall has been very good, and he feels that the right shopping mall in the right location can still be successful in Malaysia.
He referred as well to indicators of economic improvement in the country: The Kuala Lumpur Stock Exchange has regenerated from 262 index points to around 900 in the past six to nine months; industrial output is up, the banks are getting stronger and the government has begun to award infrastructure construction contracts again.
"We are very sure that the worst is over," Lae said.
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