Competition from foreign funds and local real estate investment trusts (REIT) to acquire quality malls in Malaysia are driving up prices of retail assets here.
“There is a strong appetite for our shopping malls and most of them want to buy properties which are not less than US$60 million (RM180 million),” CB Richard Ellis (CBRE) Malaysia managing director Allan Soo said.
Soo described that CBRE clients, who are foreign funds, as having a “bottomless pocket” when it comes to purchasing shopping complexes.
“REITs and funds are finding the growth potential here compelling, as Asia is an emerging economy. There is a lot of money coming into Asia, particularly Southeast Asia,” he said, adding that if previously funds were eyeing Singapore, China and even Vietnam, now their focus is on Malaysia.
“Retail property in Malaysia gives a yield of between 6 per cent and 7 per cent. As opposed to Singapore where it is about 3.55 per cent and Hong Kong where it is about 3.75 per cent,” he told Business Times in an interview.
Are they interested in all malls in Malaysia?
According to Soo, while the tendency is to eye shopping complexes located within the Klang Valley, it does not really matter whether the mall is a suburban mall or one which is in a secondary city as long as it is robust.
“Buying a mall means, firstly, finding an owner who is willing to sell. These malls must also have potential for enhancement and opportunity for growth in that market,” he said.
Interestingly, within Klang Valley there are 131 retail centres, of which 101 are shopping centres and 30 are hypermarkets. Together, they make up 43.3 million sq ft of retail space. This space roughly translates to 6.8 sq ft per capita.
Soo describes this as an “overbuilt”, but said there is still space to build more malls. “Overbuilt” is defined as too many not high-quality malls.
This is because only 49 out of the 131 shopping complexes (or 37 per cent) are considered as performers. Some of them are strata titled while others are hypermarkets.
This creates a situation where there is too much money chasing too few quality properties.
Investors are keen to pick up those that have potential for improvement or alternatively opt to build from scratch.
Moreover, “trophy assets” in the likes of Mid Valley and KLCC, are not for sale.
The value of our malls has been steadily growing since the 1980s to begin with, and coupled with a high demand, the properties are a huge pulling factor for investors.
Rental has also increased over the years. Soo says rentals at shopping complexes have grown by an average of 10 per cent to 15 per cent each time a tenancy is up for renewal.
Yield, on the other hand, is declining because stiffer competition causes prices to rise.
In Malaysia, REIT players who have retail assets as part of their portfolio include Sunway REIT, Hektar REIT, Starhill REIT and Capita Malls Malaysia Trusts.
Funds that focus on retail include Ara REIT Managers Sdn Bhd , Pramerica Real Estate Investors and SEB Asset Management.
Possible upcoming REITs with retail components include Pavilion, while See Hoy Chan, which owns the 1 Utama Shopping Complex, has indicated that it is open to setting up a REIT in the future. – Business Times
