Should you invest in retail property?

PROPERTY investment has always been known to be a great and traditionally “safer” way to generate attractive returns.

Residential property aside, the commercial or retail sub-sector is also known to provide sound investment returns.

“For those looking to diversify their investments with steady yields and capital growth, retail property is a good option,” says an industry observer.

Factors to consider

As expected, location is crucial when it comes to property investment.

“There is an oversupply of shoplots today but there is also demand for it,” says Malaysian Association for Shopping and Highrise Complex Management’s past president Richard Chan.

“However, its success very much depends on where it’s located and what it’s selling,” he tells StarBizWeek.

Chan says accessibility and the property’s surrounding location are important.

“Today, location is not the only criteria. If a shopping complex is hard to access, it will be empty. Parking space is also important. Furthermore, if the surrounding location is well established, it would also do better.”

In terms of rental trends, Carey Real Estate Sdn Bhd managing director Nixon Paul notes that mini markets, fast-food outlets and banks tend to seek units in well-established areas with high pedestrian traffic.

“Corner units are always sought after irrespective of location, with mamak restaurants being the number one contenders.”

Nixon says food and beverage outlets tend to seek shops with reasonable car parking space available.

“The higher-end outlets tend to provide valet parking services to overcome this problem.”

He adds that landlords tend to shy away from snooker parlours, Internet cafes and massage parlours.

“Rental is only offered to these businesses when landlords have been unable to secure alternative tenants for long periods of time.”

Nixon says Sungai Wang Plaza and Times Square are two sought-after complexes.

“While many other shopping complexes have failed when spaces were sold to the public, these two complexes have succeeded extremely well. Prices in these complexes range from RM 3,000 to RM 20,000 per sq ft.

“The general perception among investors is that these complexes are in prime locations with a huge tourist population and as such tenants will always be readily available. Investors are also of the opinion that property prices in these complexes will appreciate in the longer term due to the strong rental demand.”

Benefits of retail property investment

One industry observer notes that retail property can provide long-term capital investment.

“Retailers usually want to do business for the long term and generally sign long leases. This provides stability to the investor.”

Nixon notes that there is a growing preference among investors to invest in commercial or retail property.

“When it comes to commercial property, there are less maintenance issues to contend with.”

He says when it comes to issues of financing, commercial properties currently have it easier with fewer restrictions in comparison to residential properties.

“Those who do qualify can secure small and medium-sized enterprise (SME) loans that can be used for working capital.”

Nixon also notes that as of late, residential bungalows fronting busy roads in Kuala Lumpur and Petaling Jaya have been given licences to operate under limited commercial purposes.

“Usage is limited to showroom and office use only. Advantages of bungalows over shops or retail spaces in complexes is that you get larger spaces for less money, better advertising exposure and private parking.”

Know what you’re getting into

While investing in retail property has its benefits, it does come with risks.

“The success of a business in a mall or shoplot is very much determined by the health of the economy,” says an analyst.

“For those looking for short-term gains, you can forget it! Think annual returns of between 3% and 4%. It’s a long-term thing,” says Chan.

Nixon says a growing concern among investors is that rental values are not increasing in tandem with the appreciation of selling prices.

“Valuation of shops often cannot meet asking prices and rental of the upper floors of shops are always a concern.

“Furthermore, older shops without lifts are generally not sought after by tenants and newer developments tend to take between three to five years before commercial activity and occupancy reaches optimum levels.”

He adds that investments in commercial property are generally more expensive in comparison with residential property and usually attracts the more savvy investors.

“Of late, many smaller and newer investors are also investing in these properties by pooling their resources and making collective purchases. Developers should consider building shophouses rather than shop-offices.

“Shophouses give investors an opportunity to buy a single property, stay in it and also generate rental income on the ground floors and lower floors. The floor that is designated for residential use needs to be fitted out with quality fittings and finishes and with car parking facilities.” - The Star