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City&Country: Cover story-- Tourism spark for i-City

One of the first things we notice upon arriving at i-City in Section 7, Shah Alam, is the more vibrant atmosphere from when we last visited the place late last year. There are more retail outlets on the ground floors of the Cybercentre office suites — where we are headed that afternoon— more cars, more people and even a few tour buses.

This observation brings a huge smile to the face of I-Bhd’s CEO Eu Hong Chew.

The RM2 billion i-City, which sits on 72 acres of freehold land, was designed as both a technology hub and tourism destination — two seemingly disparate sectors. But Eu reasons that the knowledge community is no longer just about a physical site or buildings.

“It is also about the concept of live, work and play; the knowledge hub needs to be a vibrant place. So we knew when we created i-City that vibrancy was needed for it to be successful, and this is where the tourism component comes in,” he explains.

altI-Bhd had found it difficult at first to find tenants for the retails units on the ground floors of Phase 1 of the Cybercentre office suites but since the tourism strategy was activated recently in the form of the City of Digital Lights, a theme park of sorts made up of state-of-the-art LED technology lightscape, things have been looking up.

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When completed i-City will comprise office towers, shop offices, hotels, a data centre hub, a technology centre, serviced apartments and a shopping mall.

There are six blocks of 3 to 5-storey shopoffices (156 units) with a net lettable area (NLA) of about 300,000 sq ft and 44 retail units in the phase. These shopoffices have Multimedia Super Corridor Cybercentre status.

Al Rajhi Bank acquired 128 of the office suites for RM95 million in 2008 and appointed I-Bhd as the property manager for leasing, tenant management and upkeep of the suites, among other things.

The remaining suites in Phase 1 belong to I-Bhd and as of May this year, it had secured tenants for 80% of them. Most of the retail space is taken up by food and beverage outlets.

“Occupancy of the retail units was about 10% last year but since we launched the City of Digital Lights in December last year, this has shot up to 40%,” says Eu, adding that he is confident of full occupancy before the end of the year.

Calling tourism “the other side of the coin”, Eu says the lightscape that forms the City of Digital Lights draws 50,000 visitors a week, which in turn created demand for the retail units.

Phase 1 of the City of Digital Lights was launched in December last year, followed by Phase 2 in June this year. I-Bhd has invested about RM10 million in the theme park project.

A stroll through the City of Digital Lights invokes a sense of being in an enchanted forest with digitally lit trees (energy-saving lights) and colourful lanterns and figurines of the creatures of the forest.

i-City has also scored a first with its collaboration with the Tourism Ministry to organise Malaysia’s first Ramadan summer festival, aimed at attracting Middle Eastern tourists. The festival, held throughout the Ramadan month, offered such activities as late night shopping, with about 80 stalls that stay open until the early hours of the morning.

“We are very encouraged by the number of visitors we get, and we believe more will come once the Tourism Ministry starts promoting i-City overseas. We are also working with tour operators on tourist packages to i-City,” enthuses Eu.

He believes that the lightscape and collaboration with the ministry to turn i-City into a tourism hot spot will impact the township positively in the medium to long term by enhancing property values and creating demand for retail space. In fact, this is already happening.

And should the long-term alliance with the Tourism Ministry be successful, the theme park will become a driver for the planned hotels and serviced apartments in i-City.

“It’s killing two birds with one stone — it helps build vibrancy in i-City and improve the bottom line from a property development perspective,” says Eu.

i-City has the added advantage of having the status of technopreneur campus and International Park, which allows the lifestyle outlets in i-City to operate 24 hours. This makes the township the only place in Shah Alam with cinemas, lifestyle outlets such as karaoke and fine dining, which are currently permitted to operate only in hotels in the city.

Eu sees the technopreneur campus status as a recognition of i-City as a knowledge hub and enables it to attract international entrepreneurs and technopreneurs as well as nurture an entrepreneurial talent pool.  
He believes being able to operate 24 hours can help turn i-City into a real tourism nightspot and also cater to a niche market of businesses that operate from 11pm to 6am.

“I think that will set us apart from the other developments in the area,” says Eu.

Completion target pushed back
When the company began construction on i-City in 2005, it did not make allowances for an economic downturn. Subsequently, it has had to push back the development’s completion target of 2015. 

“It is fair to say that the economic crisis has affected our construction schedule. We’re now looking at another seven to eight years to complete the project,” says Eu.

The delay has affected the continuity of stock for sale and lease, and being a relatively new developer meant it had fewer projects in the pipeline.

However, with the better-than-expected success of the tourism component, Eu is optimistic about the future.

As the tourism activities continue to grow, Eu expects more income to come from leasing out the offices and retail units, parking charges (free at the present time) and other sources of revenue such as rents or a share of profit from the night stalls.

“This will help build steady leasing revenue. Our challenge now is how fast we can build our investment properties as well as income from the tourism component to a level where we can have a steady base to smooth our earnings,” says Eu.

Looking at last year’s financials, Eu says leasing contributed the bulk of the group’s earnings of about RM5 million to RM6 million. He expects a three to four-fold increase in leasing contribution to annual turnover in about two to three years. 

I-Bhd plans to retain about 30% to 40% of the properties in i-City and its mall as long-term investments, giving it greater control over the tenant mix.

There is also a commitment to reserve space for MSC-status companies, starting with 60 in Phase 1 of the Cybercentre office suites.

“We have exceeded that number now,” says Eu. “When we first started, we were not sure if we could get any yield if we reserved the space, but the situation is not as bad as we imagined. There is definite demand for MSC-status offices here.”

The ground floor retail units are rented out for an average of RM4 to RM5 psf while the office suites command RM2.50 psf to RM3 psf.

“Being an MSC Cybercentre drives its own demand. With the country moving away from manufacturing and into a knowledge economy, we are in a good position and are basically riding that wave,” notes Eu.

Phase 2 of the Cybercentre office suites offers shopoffices with NLA of 200,000 sq ft and gross development value of RM80 million to RM100 million. The phase was completed late last year.

According to Eu, the company is in discussions with several parties to sell off the whole of Phase 2. While he declines to name the potential buyers, Eu says the company hopes to close these deals this year.

Also completed in the township is a 50,000 sq ft data centre that is fully occupied by Kompakar Group and HTC Corp. Work is underway on another three data centres, with the next one targeted to be launched in two years’ time.

“The new data centres will be larger than our first one. We understand a bit more about the demand for such centres now, so we can afford to build them larger,” says Eu, who declines to reveal the rental yield of the data centres.

There are also plans to create a start-up community in i-City, he reveals.

While start-ups generally have limited funds and will not be able to contribute to i-City in terms of rental income immediately, Eu feels they will add vibrancy to the knowledge community.

“We are also hoping that of the 15 or 20 start-ups we nurture every year, there will be one Microsoft-like company that will take up the entire place,” he laughs.

The company is expected to launch Soho offices by the end of the year to cater for the start-ups. As the Soho offices will sit on the completed parking block behind Phase 1 of the Cybercentre office suites, Eu says construction can be completed quickly. The average unit size is estimated to be 500 sq ft.

“The price will be reflective of the quality and demand in i-City,” he adds.

Unexpected surprises
The economic downturn has a silver lining for i-City. “Five years ago, we would never have thought the tourism business could be such a demand driver. Back then, we were looking at the proposed shopping mall as the main driver,” says Eu.

With the City of Digital Lights bringing in the crowds, Eu is confident the number of visitors will hit 100,000 per week before the mall is completed. The company hopes to complete the RM500 million mall, with a NLA of one million sq ft, within three to four years. Construction will then commence on one of the proposed hotels, which will sit on top of the mall.

“We are less reliant on the mall to bring in the crowds now and because of that, the hospitality elements, such as the hotels and serviced apartments, may likely come up faster than we expected,” says Eu.
Three hotels are planned now — a 150-room budget hotel, a 210-room boutique hotel and a 350-room five-star hotel.

I-Bhd was in discussion with an international party to form a joint venture to build and manage the mall before the global financial crisis hit. It was reported that Singapore’s CapitaLand Ltd was in talks with I-Bhd.

“We had reached the building plan stage when the proposal fell through because of the financial crisis. We’re working hard to revive the project now with other groups,” says Eu.

I-Bhd is also hoping to launch a high-end serviced apartment project by end of the year. Some 228 units with a NLA of 240,000 sq ft and estimated GDV of RM150 million will be offered.

The company had initially planned to complete the serviced apartments last, but changed its strategy when the tourism element came into play.

“We are targeting rich tourists who will stay for weeks or months and have much spending power. We want to bring this project forward, but only if there is sufficient demand. We hope to achieve this with our ongoing collaboration with the Tourism Ministry,” says Eu.

Other changes are also in store for i-City as I-Bhd is considering increasing the development’s built-up area from 7.5 million sq ft to about 10 million sq ft.

“When we first started construction on i-City, Shah Alam only allowed a plot ratio of three. This has been changed to five now, which is an opportunity for us to rethink some of the components, especially the offices,” explains Eu.

i-City and KL Sentral, he adds, are both about 70 acres in size but KL Sentral has a built-up area of about 18 million sq ft, which helps it maximise its value.

“From the MSC-status perspective, we have the potential to enhance our GDV by applying for a higher plot ratio. Some of the concepts will probably have to change,” says Eu.

The challenge, he acknowledges, is in ensuring the township’s campus setting is not compromised.
“We think eventually we will avail ourselves to the additional plot ratio to enhance the value of i-City and our revenue,” says Eu. 

For now, i-City is the company’s main focus and Eu flashes a huge smile as he says: “Our MSC Cybercentre is about two years old, tourism around six months old and the technopreneur campus has just started. i-City is just starting to grow and the more we polish the diamond, the more it will shine.”

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 824, Sep 20-26, 2010


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