Cautious consumer spending weighs on Klang Valley retail market

KUALA LUMPUR: The retail market in the Klang Valley is expected to remain weak due to cautious consumer spending, even though there was a slight recovery in the previous quarter, according to DTZ Nawawi Tie Leung Property Consultants Sdn Bhd (DTZ Malaysia).

In its quarterly property research report, DTZ Property Times 2Q2009, it said although the consumer sentiments index (CSI) in 1Q2009 showed a slight recovery 7.5 points from the previous quarter, consumers were reducing their spending on concerns the economy could deteriorate.

The report, issued on July 27, expects household income to deteriorate, while job and financial prospects remain gloomy.

DTZ Malaysia executive director Brian Koh said: "The manufacturing sector had in April alone seen a 7.7% decline Y-O-Y in the number of employees (1.1% decline month-on-month) and a 9.4% decline year-on-year in wages and salaries.

"According to the latest Economist Intelligence Unit (EIU) report, retail sales are expected to decline by 7.2% in 2009 compared to the historical average growth of 13.3% per annum in the last three years," says Koh.

There was no significant change in the occupancy of shopping centres which remained above 90% at end 2Q2009.

"Hypermarkets and food retailers are even looking into expanding their retail outlets in new shopping centres in established and strong residential neighbourhoods," he said adding rental in prime shopping centres remained stable, as they are less vulnerable to the economic slowdown.

Koh said the most affected retail sub-sectors were the fashion and high-end product retailers, who were experiencing contraction in sales and are sceptical about expanding."

"Rents at well-known shopping centres like Suria KLCC, Mid Valley Megamall and 1 Utama in Bandar Utama, Petaling Jaya which enjoy high occupancy levels and visitor flows are expected to hold up well," he said.

However, new and upcoming retail centres under construction were expected to experience downward pressure in targeted rents in their efforts to build up occupancy, says the report.

Among them are the Wangsa Walk (in Wangsa Maju), Bangsar Shopping Centre West Wing Annex extension (in Bangsar) and Subang Avenue (in Subang Jaya) which offer net lettable areas (NLA) of 273,243 sq ft, 70,000 sq ft and 250,000 sq ft respectively.

With the current oversupply of retail malls in the market, it will be a real testing time for shopping malls, especially those in the secondary area with poor population catchments, said Koh.

The global H1N1 flu pandemic will pose further challenges to the industry, which is facing increasing operating costs and lower revenues. Koh added prospects for the retail sector wwere expected to be weighed down by the continued contraction in the economy, which was forecast to recover only in 4Q2009.