THE EDGE Property Excellence Awards 2013: Not your typical shopoffice

The Edge-PEPS Value Creation Excellence Award 2013 | Non-Residential: Winner - Setiawalk Shopoffices (EN BLOC), Puchong – Bandar Setia Alam Sdn Bhd

THE idea for S P Setia Bhd’s SetiaWalk started simple enough, says Datuk Wong Tuck Wai, executive vice-president of S P Setia.

“This was the last piece of land in Pusat Bandar Puchong, and it was meant for commercial use. We were struggling to figure out what to do with it. We are the first to admit we have never done a mixed-use development before,” he says.

SetiaWalk was envisioned as an urban focal point

The 700-acre Pusat Bandar Puchong was the developer’s first property development. It recently started the final phase of its development — Trigon — in Pusat Bandar Puchong. It is also the last phase of SetiaWalk. A luxury project, Trigon has a gross development value (GDV) of RM143 million and is scheduled for completion in 2015.  SetiaWalk is registered under Bandar Setia Alam Sdn Bhd, a wholly-owned subsidiary of S P Setia.

It appears that the initial struggle has paid off despite the developer’s lack of experience in mixed-use development.

The shopoffices at the 21-acre SetiaWalk won The Edge-PEPS Value Creation Excellence Award 2013 for the non-residential category. The development comprises 10 blocks of multi-storey shopoffices and serviced apartments as well as a hotel and an entertainment mall. It was developed in three phases, with the shopoffices and three of the four blocks of serviced apartments fully sold, while the other block is 90% sold. The shopping mall was retained by S P Setia. The entire project has a GDV of RM1 billion.

A 400m waterscape acts as the spine that winds through the entire length of the development. Lining the waterscape are a variety of food and beverage outlets. SetiaWalk, developed based on S P Setia’s principle of “Live, learn, work and play”, was envisioned as an urban focal point in Puchong, a public space for the people and functions like a mini city.

During a recent visit to SetiaWalk in the evening, children could be seen playing along the waterscape while the adults enjoyed their meals in the F&B outlets. The place was bustling with activity till late at night.

“We wanted to create a concept that is different from conventional shopoffices. It was opportune that we went on a trip to the US at the time. We learned a lot about mixed-use components (retail outlets, offices and residential units), how they work together and the symbiosis between the three components. Then, we decided on a development that is similar to a strip mall, and yet not a strip mall,” shares Wong.

Shops with road frontage remain popular with investors but the site only fronts one major road, namely the Damansara-Puchong Expressway (LDP). “We decided to build a courtyard so it becomes an inward-looking development to complement the shops with a road frontage. It’s almost like a pedestrian mall,” says Wong.

The initial idea was to have a rainforest theme but there were constraints due to the lack of sunlight for the large number of plants. In the end, the developer opted for a waterscape. “It’s almost like the Canal City Hakata in Japan. We knew we must have a centre showpiece,” says Wong.

The developer was also mindful that most first level retail outlets usually do not work well. “We were thinking how we could create more value … if the first level retail outlets were to overlook the centre court and linked to a series of public walkways and escalators, that might work. It took a bit of time but the first floor is slowly filling up,” shares Wong.

The ground floor is 77% occupied, the first floor, about 50%, while the offices have an occupancy of 30%. Overall, the occupancy stands at 45%. The developer has set a target of 80% by next year.

Its shopoffices have seen a capital appreciation of between 12% and 20% per year since its launch in 2008. One of its blocks with a total built-up of 9,725 sq ft was sold en bloc for RM326 psf when it was launched in 2008. Three years later, the block was sold for RM555 psf in the secondary market, giving it a capital appreciation of 70%.

The development is linked by a pedestrian bridge to a proposed light rail transit station.

Maintaining control over the tenant mix

As any retail development operator/owner will tell you, getting the right tenant mix is crucial to the success of a place. In S P Setia’s case, it is a tougher job as it is not the owner of the shops. The developer addressed this issue by offering pre-leasing service to the owners.  

“If you buy from us, we will try to get a tenant for you. We took it upon ourselves to start talking to potential tenants and get the owners to sign the pre-leasing understanding of arrangement. We went to the owners and gave them our promise, and they believed in it,” says Wong.

Wong: We wanted to create a concept that is different from conventional shopoffices

“The team, led by our head of Leasing and Sub-Sale, Group Property Services, Ng Wei Ling, worked very hard to fulfil this promise. We knew from the beginning that it has to have sizeable F&B outlets. Starbucks was one of the first companies to sign a lease with us. The investors were pleased and comforted that even before the completion of the project, we already have this commitment from retailers.

“News spread that we already have tenants lined up and the secondary market absorbed this information. The appreciation curve starts from there, and not upon completion. I suppose you can say it gave us a head start.”

However, it wasn’t all wine and roses, especially in the beginning. “Ng and her team have had a difficult time. Some investors couldn’t see the forest for the trees. They bought into the project but they didn’t buy into the value proposition we were trying to create. We have to maintain the value of the development,” explains Wong.

The developer was targeting a rental of RM6 psf but not everyone wanted to wait. “Some of the investors were willing to rent out their units at RM4 or RM5 psf instead of waiting for tenants who can pay the RM6 psf, which would have given them a yield of about 10%. If we are not going to create the targeted rent, the yield expectations would have fallen and our customers will think we don’t walk the talk,” says Wong.

Ng and her team are kept busy as they are charged with filling the remaining space and maintaining the targeted yield.

“This is an example of how we create value. We don’t make money as we only charge a nominal administration fee for the service. SetiaWalk is a forerunner for our mixed developments. We learnt from it, especially leasing,” says Wong.

Although Wong is pleased with the increase in footfalls, he wishes to see a bit more diversity in the shops on the ground floor.

“We ended up with mostly F&B outlets because they want to capitalise on the water feature. It makes for pleasant wining and dining. But what if someone wants to operate a different kind of business on the ground floor? Where are the synergies? When the leases are due for renewal, we will look at the tenant mix again and try to have tighter control. We’ll get the owners to understand what we hope to accomplish,” says Wong.

Going forward, Wong is exploring ways to give S P Setia much better control over the tenancy. “We’ll come up with a value proposition that says when you buy from us, you must buy into a certain scheme of things. I think the way to do this is a leaseback arrangement, which means we’ll only sell to you if you agree to lease it back to us. Our goal is to make the place more vibrant, and there should be more interaction between the businesses,” shares Wong.

However, he admits that leaseback may be a bit radical for S P Setia as it is not a paradigm by which the developer operates. “It will take a lot of fortitude and commitment to make it work. I have not sounded it to Tan Sri Liew Kee Sin (CEO and president of S P Setia) but it’s the way to go. This will give us control over the tenant mix and we want to make it a destination. It’s about placemaking, and to do that you must have all the ingredients.”

A place for the people

Creating value is not just for the businesses, it has to be for the people, too. Ng believes SetiaWalk is similar to a public park, but with added features — a place where one can eat, let the children play, relax or have a drink with friends.

“The water feature is well maintained and it’s a place for people to gather. It also has a synergetic effect on the F&B outlets, too. When people come here, they spread the word, and word-of-mouth advertising is important. That’s what we are trying to do: tell as many people as possible about SetiaWalk,” says Ng.

SetiaWalk has a Facebook page boasting nearly 18,000 likes and a website. The developer monitors the Facebook page and the comments daily.

“As you know, the Gen Y loves Facebook and takes a lot of pictures. That’s how we create awareness and hence, advertising and promotion. We keep the cost down but it still has a huge snowball effect,” says Ng.

Top: The shopoffices in SetiaWalk has seen capital appreciation of between 12% and 20% per year since its launch in 2008. Bottom: A 400m waterscape acts as the spine that winds through the entire length of the development

This article first appeared in The Edge Malaysia Weekly, on October 14, 2013.