The rental income of Malaysian real estate investment trusts (REITs) with retail properties are expected to be dragged down by a glut of malls and weak consumer sentiment, reported Nikkei Asian Review.
According to CapitaLand Malaysia Mall Trust CEO Low Peck Chen, rental reversion is forecasted to remain weak and under pressure this year. Notably, rental reversion pertains to the adjustment in rents when tenants renew their leases.
Competition among malls in Kuala Lumpur and Klang Valley is also expected to become fiercer, she said, adding that it may take a longer time to find tenants for un-occupied retail space.
Similarly, Pavilion REIT’s Retail Head Joyce Yap revealed that rental reversion for its flagship shopping centre in downtown Kuala Lumpur, Pavilion Mall, is predicted to be “flattish” in 2017 due to challenging market conditions.
Experts forecast that rental prices of malls would only see marginal growth this year, as the rising supply pipeline would lead to higher vacancy levels in Kuala Lumpur and Klang Valley, where there are already 146 existing shopping centres with a combined net lettable area of approximately 53 million sq ft.
Marie Vaz, an analyst with Kenanga Investment Bank, noted that rents of retail space in Klang Valley only edged by a single digit during the past 18 months. This year, she believes the average rental reversion rate for REITs with retail properties is likely to hover between five percent and seven percent.
Rents and tenant renewals in upcoming months would also remain under pressure as about 16.58 million sq ft of retail space are expected to enter the market by 2019, shared CBRE WTW.
In the longer-term, shopping centres will be facing more intense competition with ecommerce, said Low, who oversees CapitaLand Malaysia’s five malls, which was visited by nearly 60 million shoppers in 2016.
Among up and coming retail properties to look out for:
Radin Ghazali, Content Writer at PropertyGuru, edited this story. To contact her about this or other stories email firstname.lastname@example.org