Penang sees drop in retail occupancy

Tenants hold bargaining power for rental rates

The occupancy rate of retail space in Penang has dropped to 67%, compared with about 70% a year ago, while the occupancy rate of office space has remained at 75.5%, more or less the same as in 2008.

Henry Butcher Retail managing director Tan Hai Hsin said Penang currently had about 14 million sq ft of retail space, of which 33% is vacant.

“There is higher vacancy because of the poor occupancy rates at old shopping centres that have yet to be revived as well as new shopping centres that are not able to achieve full occupancy after opening,” Tan told StarBiz.

Tan said poorly occupied shopping centres in Penang were still unable to overcome their problems such as lower shopping traffic, reduced customer spending, existing tenants unable to keep their businesses, and the inability of landlords to retain tenants.

“New shopping centres opened during the last few years are still working hard to fill up their retail lots,” he said.

Retail rentals have so far remained stable, despite the economic crisis.

Depending on the location and condition of the shopping mall, rentals for the ground floor ranged from RM2 to RM29 per sq ft.

For the first floor, the rentals ranged from RM2 to RM18 psf, depending on the location and shopping mall’s condition.

“No average figure can be derived for the expected fall in rental rates for shopping centres in the northern region.

“This is because the impact varies among shopping centres. For popular and successful shopping centres, they may not be lowering their rental rates,” he said.

“If any, it will be in the form of rental rebate and discount. The discount may range from 5% to 10% only, which is not given to all tenants in the shopping centres, and depends on the bargaining power of the retailers.”

He said the poor-performing shopping centres might have to give discounts (5%-30%) to retain tenants. “Again, this depends on the bargaining power of the tenants.”

For new shopping centres, he said, they might have to give temporary discount and longer rent-free period to attract new retailers. “Once again, this depends on the bargaining power of the tenants and the landlords.”

The retail market in the country was expected to turn negative in the second quarter, he said, adding that by the third quarter, retail sales would improve and climb slowly back to positive zone.

“For the whole year, retail sales for the whole country should record a 3% growth rate,” he added.

Tan said popular shopping centres in Penang would not suffer a large decline in shopping traffic.

“Newly-opened shopping centres during the last few years will have to work hard to draw in more retailers and shoppers.

“Shopping centres targeting for opening in the next two years will face difficulties attracting retailers.

“Retailers are holding back their expansion plans even though some of them may not be affected severely,” he said.

On office space, Henry Butcher Malaysia (Penang) director Dr Teoh Poh Huat said the present occupancy rate of about 75.5% for a total office space of around one million sq m was about the same as last year. “There is an overhang of 258,112 sq m,” he said, adding that the occupancy rate in 2007 was 74.4%.

Teoh said the rental rates for office space had remained flat since last year, ranging from RM2 to RM3.50 psf.

“According to a Henry Butcher survey, office rental rates in the country are expected to drop amid an economic slowdown. It is hard to quantify the decline, as there are still many tenants whose tenancies won’t expire for another two to three years,” he said.

“For those tenants whose tenancies are going to expire, the rental rates they get depend on their bargaining strength.

“It is now a tenant’s market. Landlords are ready to offer more concessions on rentals to blue-chip tenants.”

Teoh said there was no significant supply of new office space expected in the market.

“Most of the offices in the traditional financial district of George Town are old except for Wisma Great Eastern in Lebuh Light, which is about 60,000 sq ft.

“The occupancy rate for Wisma Great Eastern is about 80%. The rental for ground floor is RM4.30 psf, while the rental for the upper floor ranged from RM2.30 to RM2.80, depending on the units sea-view,” he said.

Teoh said the trend in demand nowadays was towards offices with layout plans that maximised space usage.

“Newer and better design office suites with fewer columns and greater space layout can help a company save on operation costs,” he said.

Meanwhile, C.A. Lim & Co proprietor Lim Chien Aun said the overhang of office space in Penang was partially caused by competition from buildings in non-commercial zones.

“Such buildings include pre-war and post-war houses that are converted for commercial use. These properties, with easy accessibility and main road frontage, tend to snatch potential clients of office buildings,” he said.

“Further more, such pre-war and post-war houses do not have maintenance and service charges.”

As for retail space, Lim said the current trend was for retail properties to be located away from George Town, where there was a strong catchment of population in areas such as Bayan Baru, Air Itam and Pulau Tikus. - By David Tan (The Star)

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