Iskandar’s emerging mall landscape

WHEN Iskandar Malaysia was first planned, the aspirations were regional rather than local. Among others, the government saw it as a hub for entertainment, education, medical services and, of course, shopping.

While there may have been glitches and delays in the development of some sectors in Iskandar, the mall scene is thriving despite a softening economy. The malls are not only changing the retail landscape of Malaysia but of Asean as well.

The much talked about Johor Premium Outlets (JPO), for instance, is doing well, according to Savills (Malaysia) Sdn Bhd managing director Allan Soo. “Its average turnover per sq ft per month rivals that of the top five malls in the country,” he says.

JPO, which retails luxury and premium goods, was one of the earliest malls to be planned for the area. While its patrons are mostly local, Soo says this is a good thing as it shows that Johor’s retail industry is large and mature enough to support JPO’s off-season discounted price channel. A major part of its success is that it is able to offer customers luxury and premium brands at a reasonable price.

However, Soo says there is a limit to the number of such off-season luxury brand malls because the merchandise that each of these shops can source from existing full-price shops within the area is limited. “The industry consensus is that for the whole of Malaysia, the possibility is limited to three or four more such malls — one in the southern region, one in the north and maybe one or two in the central region. JPO is serving the south and has proven to be very successful.”

Leveraging different strengths

Facing strong competition, malls such as City Square, AEON Mall and Komtar JBCC (Johor Baru City Centre) are leveraging their strengths to attract customers. “City Square’s offering is its comprehensive and massive range of fashion items and accessories. It also attracts Singaporeans as it is perceived to be safe, secure, clean and convenient,” says Soo.

“Recently, AEON added more screens to its highly successful cineplex and a new floor of restaurants. The quality of its food has become a major attraction,” he adds.

Komtar JBCC, meanwhile, recently added new offerings, such as Marks & Spencer, Sephora, Bath & Body Works, Bobbi Brown, Victoria’s Secret and Dior, says Soo. “Together with City Square, both malls act as a cluster to pull shoppers in with their range of fashion accessories and beauty and food products. The mall industry in JB is seeing very healthy growth,” he adds. There is also growing demand for beauty and food and beverage (F&B) outlets in JB, he notes.

Samuel Tan, director of KGV International Property Consultant (Johor) Sdn Bhd, says the newer malls have effectively differentiated themselves from the earlier generation malls because they needed to attract not only locals but foreigners and expatriates as well.

“They incorporate lifestyle themes in their concept. For example, KSL City turned its roof into a playground, JBCC added the Angry Birds Activity Park, and the Mall of Medini, which is located next to Legoland, offers a tourism concept.”

AEON is a mass market shopping centre, while City Square and Komtar JBCC carry many international brands and have a variety of F&B outlets. “These are lifestyle malls, while JPO is a standalone as it offers off-season branded goods at a discounted price. In all these new malls, one can observe the importance of F&B,” says Samuel.

Incorporating the lifestyle element has become a trend among the malls in JB, he points out. “Not all of them provide anything beyond the usual cinemas, karaoke lounges, spas and personal wellness services, but the mall owners are trying to make shopping an experience in itself.”

On whether the malls are targeting foreigners and expatriates, Soo says the expatriate population in JB is still small. “Expats do not form a great proportion of the shoppers in JB. Singaporeans frequent city centre malls, such as City Square, and also the hypermarkets. The latter attracts Singaporeans because of the lower priced goods and the [weaker] ringgit factor.”

Shopping malls facing a glut?

While it has been reported that Iskandar’s property sector is facing a glut, Soo says it is the economic headwinds that are causing the slowing effect. “We understand many developments are being reassessed in view of the economic headwinds. Some are being downsized, while some are on hold indefinitely. One was put up for sale. However, this is important for the industry as a pause in development will forestall what could well be fierce competition in the near future between all these malls.”

Looking at the list of up-and-coming mall developments in the region, there are at least four under construction and 11 in the planning stages.

Soo says the average occupancy rate at the malls in Iskandar is estimated at 77%. “However, major malls in the city centre and affluent suburbs are usually 90% occupied, with wholly-owned malls mostly fully tenanted, such as JB City Square, AEON Tebrau City, JPO and Sutera Mall.”

On rental rates, Soo says most of the older malls in Iskandar command rents of less than RM20 psf for prime space. These malls either need upgrades or replacements as they were built based on outmoded models.

This compares with City Square, whose rents could exceed RM50 psf for a prime location. “JB City Square is an exception due to its proximity to the Customs, Immigration and Quarantine Complex. This allows it to enjoy exceptionally high footfall, which has contributed positively to its rental income,” says Soo.

“In the suburbs, rents have reached RM23 psf for prime lots, but (this was achieved) after two terms of rent reviews,” he points out.

Samuel says new malls in Iskandar can fetch an average rental rate of RM20 to RM30 psf for the ground floor, and the rate decreases for the higher floors. In the light of the economic headwinds, most developers “will be careful to launch any new malls unless there is a clear point of differentiation”, he adds.

Tan Hai Hsin, managing director of Retail Group Malaysia and Henry Butcher Retail, says the glut is more in the area of serviced apartments and high-rise residential properties rather than malls.

“It is not serious for malls, yet! There has been no major new supply in the last few years. There are mainly refurbishments. Major retail supply in the next few years will include Mid Valley Southkey Megamall and Paradigm Mall. Once these new malls are completed, the older shopping centres will lose retailers and busines to newer, bigger and modern shopping centres,” he adds.

“Shopping centres that have not been performing well will need to work harder to retain existing tenants and attract new tenants. Older shopping centres will need to improve their trade and tenant mix to remain relevant and sustainable.”

Soo remains positive on the broad prospects of Iskandar as foreign investments continue to pour in and with the government’s initiatives to improve the tourism sector. “With more meaningful economic activity, such as the government’s initiatives to improve the tourism sector, the high-speed rail, inter-city rail and Rapid Transit System, these will shape Iskandar’s retail landscape,” says Hai Hsin.

PARADIGM MALL JB

PARADIGM MALL JB, set to be one of the largest malls in the region, is on track to be launched in the third quarter of 2016, says WCT Holdings Bhd executive director Choe Kai Keong.

“The size of the mall will allow it to cater for a wide range of merchants. And it will be home to many of Johor’s firsts, including a 16-screen Golden Screen Cinema multiplex, a 20,000 sq ft ice-skating rink and indoor Rocknasium, a 30,000 sq ft Village Grocer gourmet supermarket and a 200,000 sq ft Sogo Department Store,” he says.

Paradigm Mall JB, located along the Skudai Highway, has taken into consideration the accessibility and convenience of the shoppers, according to Choe. “Its strategic location provides convenient and easy access to and from the Causeway, tapping the local population and tourist arrivals within the Johor catchment. The rising household income of the local population makes it a viable commercial development,” says Choe.

He believes that once the mall is completed, the six-storey building, with a gross lettable area of about two million sq ft, will be one of the city’s most striking landmarks.

So far, about 60% of the net lettable space has been taken up by tenants. “Tenants of the mall include Camp 5, H&M, Uniqlo, Toys R Us, Kidzoona and Kaison as well as the flagship stores of sports, children’s gym, electrical and bookstore brands,” says Choe.

Click here to look at some properties in Johor.

This story first appeared in The Edge Malaysia’s “Iskandar Malaysia Special Report” on Nov 9, 2015. Subscribe here for your personal copy.