Oversupply and political instability may hamper retail sector recovery

KUALA LUMPUR: Recovery for the Malaysian retail sector has been observed in 4Q 2009 but political risk and oversupply of retail space could dampen investor sentiment.

Political instability could also affect consumer sentiments as well as tourism which has a projection of 24.6 million arrivals in 2010, said Brian Koh, executive director of DTZ Nawawi Tie Leung Property Consultants Sdn Bhd at the 3rd Malaysian Property Summit on Jan 26.

There is also  currently an oversupply of retail space. New supply of more than 3 million sq ft is expected in 2010, which could affect rental growth of marginal centers as well as cap potential rents of new centers, said Koh.

Based on 2007 figures, Kuala Lumpur registered 12.7 retail stock per capita against US$11,668 GDP per capita. Comparatively, Singapore has 7.4 retail stock per capita against US$31,400 GDP per capita while Hong Kong stands at 16.2 retail stock per capital against US$37,300.

“Personally, I don’t think we need another shopping center. Our concentration should be on how to maximize the returns of the existing stock,” said Koh.

With retailers still not in expansionist mood, and some still in the midst of consolidating stores, vacancy rates in retail developments could increase in 2010. Rentals are expected to remain generally flat but may improve after a period of consolidation. However, rental yields are expected to be stable, supported by liquidity and low interest environment.

Rental rates has increased by a marginal 1.39% in 2009, compared to 4.52% in 2008 and is projected to increase by a mere 0.6% in 2010.

Other factors that could deter consumer spending this year are the eroding of household income due to inflation and the tightening of credit debt by Bank Negara.

The 3rd Malaysian Property Summit held on Jan 26 was organized by the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector (PEPS).
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