Why you should stay away from commercial properties now?

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.

 

About The Author

ongkl

Coming from a humble little town named Tangkak in north Johor state of Malaysia, I am so lucky to have chances to learn and work both in Johor Bahru and Singapore - a conurbation with 6.49 million still fast growing population - since year 1996. Hope now I can have a chance to contribute back to the community by sharing what I see, what I know and what I learn in this wonderful place.

5 Comments

  • WY

    Reply Reply February 11, 2009

    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.

    • ongkl

      Reply Reply February 11, 2009

      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

  • klsg

    Reply Reply November 4, 2014

    Klang Valley seems to have oversupply of retail units with so many shopping malls coming. However, what do you think JB area? So far, don’t see a very good mall as compare to Klang Valley one. This means got high potential in few years time after RTS completion?

    • ongkl

      Reply Reply November 5, 2014

      Hi klsg,

      I am not so sure about what is going to happen after the RTS completion. But my experience in both JB and Singapore tells me that shoppers these days care more about the shopping experience than just the price tags. For example, we can see more people in KL are willing to spend more on high-end products in prestigious malls.

      Although we may not see an oversupply in JB’s retail units, the demand is still yet to grow as most of the retail units in JB are still targeting at mass market. RTS may bring more shoppers to JB in future, but if choices and quality of shopping experience in JB are still limited as compare to Singapore, it would be just a waste.

      If we can see more high end shopping malls in operation, then it would be an indication of higher potential for retail units in JB.

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