Watch Out for Competition to Retail REIT!

Investing into a retail REIT requires due diligence and the process is quite similar to buying a property with the intention of earning positive cashflow and long term capital appreciation. We should not be complacent in our due diligence on REIT as each capital should be viewed as our seed or soldier to fight for our financial freedom, or if you are already financial independent, there is no harm to receive that extra cashflow to further empower the various aspects of your life.

Take a look at Tropicana City Mall (TCM which is under CMMT REIT). I used to visit the mall in the past for movie. Recently, I visited TCM during Friday evening, the atmosphere in the mall was rather quiet, and businesses at F&B shops were OK but not great. Nonetheless, it is not a conclusive observation as I was only there for 2 hours.

The retail landscape has changed tremendously in recent years and the additions of millions of new retail space are likely to pose competition to the existing malls. Not forgetting that KL and Selangor still have around 4.2 million square feet of vacant retail space respectively. Hence, the Malaysia Shopping Mall Association has also been urging the local authorities to impose two-year freeze on new malls in KL and Selangor.

When you assess TCM, do assess the competing retail space component from GLO Damansara, the rejuvenated Atria Shopping Gallery, Starling Damansara Uptown, One U, Curve, Paradigm Mall and etc. Then form an opinion if you think TCM could prosper amidst onslaught of competing malls. If TCM is doing well eventually, it will contribute positively to CMMT REIT and vice versa.

Let’s take a look at Mid Valley and Gardens Mall, the construction of KL Eco City next to Gardens Mall seems to be progressing well and this project will feature a 300k Gross Floor Area (GFA) of retail component that will come on stream in 2017. Do you think the retail space of KL Eco City would pose a threat to these 2 malls or do you think KL Eco City could complement and further strengthen the position of these 2 malls?  

Location, location, location is important. But if the mall faces fierce competition amidst slowing economy and oversupply of malls in certain location, it is going to be the survival of the fittest. Only the quality malls which have stood the test of time, could survive and likely to prosper in the long term. 

If you are catching Pokemon, Pokemon Go may lead you to that quality malls.