City & Country: 99 sen rental scheme revives mall

The current economic slowdown has brought many a business and retail activity to a slow grind in Penang. However, at one shopping mall that was facing high vacancies last year, the proactive effort of a retail unit owner to change things around caught the attention of many.

The Pan Palace Plaza in populous Taman Lip Sin was completed in 2007. Nevertheless, it had attracted only 20 tenants for the 173 units available.

One reason for the low occupancy was the economic situation. With hundreds of factory workers being laid off, businesses were wary about starting new operations, fearing a lack of customers.

However, lot owner CY Goon (pronounced “Guan”), who runs a confectionary business, decided to devise an innovative scheme to bring in more tenants and increase footfall to the mall.

Six months later, it seems to be succeeding.

The promotion
The motivation for Goon’s so-called 99 sen scheme was inspired by the never-say-die attitude of AirAsia group CEO Datuk Seri Tony Fernandes who built the airline into the behemoth it is today. By applying a positive attitude to his situation, Goon created a plan to try and turn the fortunes of Pan Palace Plaza around.

Initially, Goon had to do a lot of convincing to get shopowners to allow him to “manage” their properties. In other words, he would be their unofficial manager, looking for tenants to fill up the vacant lots.

Using his own money to finance promotional material, his own colour printer and paper, he would go around the island looking for tenants. Three traders signed up initially. Then, a local daily picked up the story and slowly, more attention was brought to the scheme. Goon soon found himself attending to calls all day long. Now he has about 40 units in his books. It should be noted that not all the retail space in the mall comes under his scheme.

The rental promotion covers a period of three years and does not include the ground floor. For the first six months of 2009, tenants pay only 99 sen per month, while for the rest of the year the rent is 99 sen psf.
Subsequently, for 2010 and 2011, the rent is adjusted according to a tiered format. The units on the ground floor, or the premium level, has a different rental structure (see box).

At the time of writing, the 99 sen per month rental promotion is over, and the rent for the premium level has increased. Business owners interested in opening a shop at Pan Palace Plaza on non-premium levels must now do so under a new rental scheme — at 99 sen psf. In this scenario, the rent for a 500 sq ft unit is RM495 per month. Even with the change in the rent, the outlay is still lower than the market rate. Premium levels at other malls go for RM15 to RM35 psf, while other spaces go for RM3 to RM10 psf.

This promotion will not be extended, and just like how AirAsia sells its tickets, those who come in early will benefit more than those who come in later.

Since the introduction of the 99 sen promotion this year, occupancy at the mall has increased from 20 to 75 units. The response from tenants has been positive, with most of them happy with the innovative scheme.

“I didn’t even know the mall existed until I heard about the promotion!” says Charles Stuart of Arissa Studios Cosmetic. He says he would not have set up shop at the mall had it not been for the special promotion. He has also noticed more human traffic at the mall.

Another tenant, Albert Chin, was also attracted by the promotion. “Why not, since it’s only a ringgit [rental]?” he asks. Chocofee, a chocolate beverage and snack outlet, is Chin’s first venture into F&B although he has run his own IT business for many years. The low start-up cost and good location, he says, was worth the risk. His daily sales has increased as more people visit the complex.

Albert Tan of DXN, a direct selling company, set up his stockist outlet at the mall because of its location, with members of his network living nearby. He says the scheme is a good one, especially for small businesses.
 
But there’s more
Besides the rental promotion, another owner-led initiative is a flea market that allows outside retailers to sell their wares at the Pan Palace Plaza without paying a fee. The only condition is that the owners must open their stalls. The flea market, which has about 130 stalls, is held every Saturday evening.

Since not all the units are under the scheme, the developer and manager of the mall, Bukit Gambier Land Sdn Bhd, has stepped in to fill the gap. Company manager Balan Suppiah says it will offer junior anchor tenants either free rent for the first few months or low rent — below market value — for the first two years. For branded retailers who are willing to sign up for a longer tenancy, the developer will bear the cost of the basic renovation. The current anchor tenant is Sunshine supermarket.

The management also plans to bring in events and fairs, such as IT, furniture or home appliance fairs. Festive events like Ramadan bazaars or back-to-school promotions will also be organised.

Bukit Gambier Land spent RM40 million building the 5-storey Pan Palace Plaza on a 36,200 sq ft piece of land. Its built-up is 225,713 sq ft, with units ranging from 300 to 1,000 sq ft on the premium level, while the units on level 2 to 5 are between 120 and 500 sq ft. All units are strata titled and were sold for RM100,000 to RM1.3 million.

The 99 sen promotion is halfway through its first year of implementation and the outcome has been decidedly positive, with more stores opening amid growing interest from both consumers and entrepreneurs.

While Pan Palace Plaza has seen improved footfall, the retail situation in Penang is not all rosy.

“The commercial property sector is in its consolidation stage where good properties with good design and location command better rental rates,” says Michael Geh, senior partner of the Penang branch of Raine & Horne International + Zaki & Partners Sdn Bhd.

Geh also finds that older malls in shabby condition are suffering from high vacancy while newer malls are faring better. Malls that have been sold entirely by the developers seem to have lower occupancy due to a lack of commitment from the management to see the malls succeed, says Geh.

Nevertheless, Tay Tam, resident director of Knight Frank Malaysia/Ooi & Zaharin, says retail activity in 1H2009 was relatively stable albeit a little quiet. He says there should be a further weakening in 2H2009 for the shopping complex and retail industry on the island.

“Macro-economic measures to stimulate the market will help. Good management and maintenance as well as promotions and events will be crucial in these challenging times,” says Tay.

Based on the 4Q2008 National Property Information Centre’s preliminary report, Penang is the second highest state with vacant spaces in shopping complexes, with about 3,864,889 sq ft. Johor registered the highest vacancy rate of 35.2%, followed by Penang (30.3%) and Melaka (24.5%). In Kuala Lumpur and Selangor, the two biggest providers of retail space in Malaysia, the report showed vacancy rates for KL rising from 14.5% to 16%, while Selangor stayed steady at 9.5% from the last quarter.

As we battle the global slowdown, one can learn from the efforts of one shopowner to beat the odds.



This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 764, July 20-26, 2009