Large-scale malls dominate Kuala Lumpur’s 2023 supply pipeline

The malls have an average of 1 million sq ft of net lettable area.

A JLL report says that despite the returning crowds and new retail entrants in Kuala Lumpur, concerns have now shifted to the rising prices and operation costs. This is likely to have a dampening effect on retailers’ profit margin as price hikes cause a slowdown in consumer spending, resulting in lower sales volume. Consequently, more store closures are likely to be seen as chain retailers opt to consolidate their stores.

The analyst adds that the incoming supply pipeline for 2023 is dominated by large-scale malls averaging at 1 million sq ft (NLA) each, such as The Exchange Mall, Pavilion Damansara Heights, and 118 Mall. 

“To meet the needs of shoppers nowadays, these new malls will be incorporating experiential retail features as part of the malls’ shopping experience,” JLL says.

Here’s more from JLL:

Since the previous quarter, crowds of shoppers and diners have brought excitement back to physical malls with various activities and events held for the experiential element. Weekends and public holidays saw malls with long queues, packed restaurants, and fully occupied parking bays. However, recovery of demand was uneven, dependent on factors of location and the target market.

The experiential element in malls is becoming more relevant as several new indoor skating rinks and the country’s first indoor farm opened. Notable new openings included Japan’s largest bookstore chain, Tsutaya Books, which made headlines for their store debut in Southeast Asia. For existing retailers however, store closures were observed in response to increasing operating costs.

Opening of a new expansion adds to Suburban stock

The opening of IOI City Mall Phase 2 on 25 August saw the addition of another 1 million sq ft to the mall’s total NLA, making IOI City Mall the biggest nationwide at 2.5 million sq ft. It opened with an estimated 40% occupancy, with more to come based on the “opening soon” signs. Secured tenants reportedly accounted for approximately 80% occupancy.

The vacancy rates of both the City Centre submarket and Suburban submarket moderated at 0.6 ppts to 16.5%, and 0.4 ppts to 19.0%, respectively, in 3Q22. This comes on the back of no new completions within the quarter and steady occupancy rates held up by the returning mall crowds.

Pavilion Bukit Jalil Mall continues to hold the spotlight

Rental rates showed slight improvement in both submarkets, mainly due to the end of rent rebate periods as demand for retail space improved alongside rising retail sales for the quarter. Rising inflation rates also added to increasing operating expenses, which were then passed on to mall tenants by way of higher rents.

No mall transactions were seen for the quarter. Talks between Pavilion Real Estate Investment Trust (REIT) and Regal Path Sdn Bhd (a joint venture company of Malton Berhad’s wholly owned subsidiary and Qatar Investment Authority’s (QIA)) continued, regarding the acquisition of Pavilion Bukit Jalil Mall.

Note: Kuala Lumpur Retail refers to Kuala Lumpur's prime retail market.