Despite what shopkeepers might be hoping, things are going to get much tougher for retailers. Amid fear of a protracted downturn and rising numbers of the unemployed, consumer spending has fallen and affected retailers. And that in turn, means that commercial property prices have much further to fall.
While the festive season had kept consumer spending fairly buoyant, Retail Group Malaysia’s managing director Tan Hai Hsin said it had been lower compared with last year.
“The shopping centres and major commercial centres are still very crowded with shoppers but it is obvious that spending has dropped. Retailers could be looking at significantly slower sales post-Lunar New Year.”
A quarterly survey by the Malaysian Institute of Economic Research (MIER) showed that in the fourth quarter of 2008 (4Q08), the Consumer Sentiments Index dropped to 71.4 points, down 17.5 points from 88.9 points in 3Q08 as households felt the pinch from a softer economy.
While Malaysia’s inflation rate has cooled to 4.4% in December from 5.7% in November on falling oil prices, consumer sentiment has remained subdued on fears of the country entering into a recession amid the deteriorating conditions of the global economy.
Retailers are facing emptier tills. That’s bad news for cashflow. And that means it’s hard to pay the rent. Most stores still have to shell out 1 month’s rent, in advance, to their landlords every month. For those retailers that were feeling the heat at the end of last year, December’s rent day was a big test. Finding the cash for March’s rent day is now likely to be even more stressful.
This year’s going to be really dire for retailers. Most will have survived through Christmas and Lunar New Year but from February onwards it’s going to hit the hardest.
Bad news for shopkeepers is bad news for commercial landlords
Retailers having it tough isn’t much of a surprise. But the knock-on effect means things are going to get much worse for commercial landlords too.
Commercial landlords will have to take some huge hits. Some of their tenants simply won’t be able to pay up.
Both shopping centre and retail warehouse rents also declined year-on-year. What’s more, some shopping malls are having to cut service charges, further reducing their income.
And unfortunately for the landlords, retailing is just one problem. Their overall rent book is being squeezed hard across the board, with things looking particularly bad in the City, where a mix of job cuts and oversupply means rental falls are likely to accelerate. Hence we forecast of a 20%-30% fall in commercial property values this year.
What this means for investing in property
For investors the message is very clear. Retail: don’t touch – well you knew that anyway. And as for commercial property – there’s still a long way to go before we’re anywhere near bargain-hunting time.
(If you’re not already a subscriber to Real Estate Investment in Johor Bahru, subscribe here to receive our FREE latest update and articles via email.)
We write regularly useful information about real estate investment. Some of our featured articles include:
“How to know if a property investment is worth investing?”
“How to finance your real estate investment for maximum return?”
“How to estimate the value of a property?”
“How to find good real estate/property agents?”
(Also, don’t forget to subscribe to our newsletter to receive a property investment evaluation tool. You can use this tool to estimate monthly cash flow, monthly installment and return on investment for your property. This tool will also show you if a property investment is worth borrowing/leveraging.)
Your comment and feedback on our posts are very much welcome. Please visit our blog posts to view other readers’ comments and write your feedback.
Related posts:
{ 2 comments… read them below or add one }
Hi Ong,
My blog has a post on Malaysia’s Valuation and Property Services Department (JPPH) – Ministry of Finance, Malaysia. JPPH has a National Property Information Center (NAPIC). There are quarterly Property Stock Reports and Property Market Status Reports. Commercial Property is included.
You may take a look. The website is quite informative.
Thank you, WY, for sharing this useful website with us. The reports and data provided by it allow us to better understand the current market situation of properties in Malaysia.
Hope can hear more from you.
Cheers