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| An artist’s impression of Ipoh Parade |
EVEN though only a small number of shops were opened after the soft reopening of Klang Parade in Klang, Selangor, in January this year, the turnout was impressive during the Chinese New Year period.
“We observed the shoppers when they came in [during that period], and there was a sense of wow. They were surprised with the changes. We also noticed that they were better dressed, which, I supposed, had to do with the new, more upmarket environment,” says June Lim, director of asset management at ARA Asset Management Ltd.
Klang Parade is one of five malls acquired by ARA Asia Dragon Fund (ADF), an affiliate of Cheung Kong Group, which is owned by Hong Kong’s richest man, Li Ka-shing. The fund is managed by ARA Private Funds. The other malls under ADF are 1 Mont Kiara Mall, AEON Bandaraya Melaka, Ipoh Parade and Citta Mall, with a total space of more than 2.7 million sq ft and total investment of about RM1.3 billion.
ADF started renovation and refurbishment works at Klang Parade, Ipoh Parade and 1 Mont Kiara Mall last year at the cost of about RM200 million. Ipoh Parade is expected to be fully refurbished in November, 1 Mont Kiara Mall by April or May, and Klang Parade in June. Work on the upper floors of Klang Parade, where Golden Screen Cinemas’ cineplex will be located, is ongoing while the rest of the mall is completed.
“ADF is classified as an opportunistic fund. So we look for underperforming assets that we can try to turn around fast. Furthermore, the returns are much higher,” says Lim.
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| The brightly adorned concourse area of Klang Parade |
ADF was set up in September 2007 and is ARA Group’s flagship private real estate fund. It has an aggregate committed capital of more than US$1.13 billion (RM3.7 billion). With an additional allocation of US$500 million for potential co-investments with the fund by a major investor, ADF has an equity capital of more than US$1.6 billion at its disposal. This represents a potential real estate investment capacity of more than US$5 billion. The closed-end fund has an initial lifespan of seven years, including an investment period of four years.
Lim says the key goals of the refurbishment exercise are to increase retail exposure, improve shopper circulation and give the malls an attractive and modern look to enhance their values and returns.
According to Darryl Yamamoto, principal and owner of US-based DYXY Architecture and Interiors, who was responsible for the new design for the three malls, it is about putting the pieces together.
“In our opinion, certain elements have to be at a certain place for a shopping centre to work. You need escalators, department stores, anchor tenants, cinemas and others in the right places. These elements are all composed within a kind of three-dimensional puzzle.
“We try to put the right thing in the right place so that every store in the shopping centre will have as much exposure to the public as possible and give the shops the highest chance to be successful,” he says.
A case-by-case study
Designing or renovating shopping malls is a job that requires a case-by-case study, says Yamamoto. “Some projects have land area while others don’t. With shopping malls, it’s about the shopper flow and visibility of the shops. There is a laundry list of at least 30 things that need to be addressed before we can say the mall has a chance of being successful.”
Lim says she considers Klang Parade the fund’s flagship because it has the largest project value and the most extensive changes.
The pillars on the top floor were cut to provide a vast space. Select floor plates were removed and replaced with concrete platform stairs to give more height to house the cineplex. The mall has two new atriums and three skylights designed in the shape of a leaf to represent the natural flora and fauna. The layout and shopper circulation were also redesigned.
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| We look for underperforming assets that we can try to turn around fast. Furthermore, the returns are much higher.” — Lim |
“It’s always interesting to start a project. If it’s an existing building like Klang Parade, we get a set of plans, and the good and bad things appear very quickly to us. One thing that is essential for all shopping centres is the placement of the escalators. It’s the spot in the malls where people, in a sense, will collect and be exposed [to the shops] because they need to use the escalators to get to the next level. Putting the escalators at the extreme end of the walkways means people will be forced to walk the length and be exposed to all the shops,” says Yamamoto.
“We believe the skylight is a huge benefit and was created to throw in new dimensions. The natural light gives the place a different feel and makes it come alive. A lot of the work at Klang Parade was based on shopper circulation and skylight.”
Lim says, “As for the cineplex, based on today’s requirements, it needs a floor-to-ceiling height of at least 11m, which Klang Parade didn’t have. So, we had to build upwards.”
Yamamoto also reshaped the boxed layout to include sweeping curves. “It does help visibility to curve one side of a shopping centre. Using curved walkways is a good way to make them seem shorter and give the tenants more exposure.”
Even though the mall now has a net lettable area (NLA) of 660,102 sq ft, compared with the previous 696,442 sq ft, the number of shops has been increased to 231 units from 123.
Lim says the previous layout had a lot of large anchor tenant spaces that did not generate ideal rents. By reducing the sizes, ADF was able to increase the number of shops and offer more variety to shoppers.
“We placed all the anchor tenants at strategic locations to generate traffic and shopper circulation in that area, and with smaller shops, we can charge higher rents. We have invested heavily to help tenants improve their image. We have a fit-out team that helps the tenants with their fit-out work. It comes together with the new design of the mall, the new skylight and refreshing ambience that we hope will bring success to Klang Parade,” she says.
The average rent is expected to grow 20% to 30% after the refurbishment.
“The wow factor was there when we reopened Klang Parade. Klang residents have a strong bond with the shopping centre and because we closed it for the refurbishment, they were really looking forward to seeing the end result. Now, we want to get the mall moving by pressing the tenants to complete their renovation fast and open for business,” says Lim.
Among the anchor tenants are Kamdar, Econsave, Ampang Superbowl, SenQ Digital World, Digital World, Next Hip Hop Arena and Parkson.
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| Ipoh Parade’s refurbishment presents patrons with a new shopping experience |
As for Ipoh Parade, the top-floor car park was decommissioned and new structures were built to facilitate more entertainment space, including a cineplex, and amenities such as the toilets were renovated. The refurbishment will also give the mall a modern and contemporary look and feel as well as offer new amenities, including a mother care room for shoppers with young children and a prayer room.
“We have invested quite a bit in the mother care room. We are probably the only one to have mini toilet bowls and sinks for kids in Ipoh, and the room is spacious. The prayer room is also spacious, about 600 sq ft. In all our refurbishment works, we go for functionality and aesthetic,” she says.
Another feature in Ipoh Parade that Lim is excited about is the light box at the main entrance which covers the entire height of the building. The light box uses LED lamps and will be ready in April.
“Ipoh Parade, which is located in the heart of Ipoh, doesn’t just cater for Ipoh folk. We see a lot people from nearby towns coming to Ipoh Parade. It is very much a transit point and tourist spot. We have seen quite a number of tour buses there. We want to make Ipoh Parade a signature development for this city,” says Lim.
Ipoh Parade has an NLA of 618,448 sq ft, up from the previous 584,794 sq ft, while the number of shops has been increased to 199 units from 182. Its anchor tenants include Parkson, Golden Screen Cinemas, Popular bookstore, Ampang Superbowl, SenQ, Next Hip Hop Arena, Next Food Avenue, Mr DIY and F.O.S.
The refurbishment of 1 Mont Kiara Mall is on a much smaller scale as it is a new shopping centre. “We are trying to improve the shopper circulation by adding new escalators, and making some changes to the façade as it looks more like an office building now. We want to make it more shopper-friendly and retail-centric,” says Lim.
Yamamoto concurs with her. “If you drive by 1 Mont Kiara, you wouldn’t know there are shops in there. The objective is to increase retail exposure, maximise shopper circulation and give it a theme that is understandable. For us, the biggest improvement would be people knowing there are shops in the building when they drive by. We want them to feel that they have to go and visit the shopping centre.”
Its NLA of 226,000 sq ft will remain, but because of the conversion of kiosk spaces to proper units, the number of shops will be reduced to 127 units from 132.
Currently, Klang Parade has an occupancy rate of almost 88% and Ipoh Parade, 90%. For 1 Mont Kiara Mall, the rate is expected to reach 80% in the next few weeks.
“For opportunistic funds like ADR, we are expecting an internal rate of return of at least 20%. In terms of shopper traffic, we expect it go up by at least 30%,” says Lim.
Suburban and retail are the way to go
ARA, like any fund companies, is always on the lookout for new acquisitions.
“That’s what fund companies do. We get the funds in, we buy and we need to make the funds work. So, it’s a continuing process. That’s why my job is never done,” says Lim with a laugh.
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| An artist’s impression of Klang Parade |
She believes that when it comes to investment, suburban properties are the way to go because there are more opportunities.
“KL city centre is pretty saturated, and for most opportunistic funds, we look at the growth potential. All the prerequisites have to be there before we make an acquisition, and we have to see how we can stretch the dollar and make the money work harder for us.”
At the moment, the retail sector is the most attractive to ARA, she adds.
“The office market is saturated while the residential segment depends on several factors. Everything depends on what kind of funds we come in with. Let’s say, if it’s a real estate investment fund, then we will look for stable growth. But when it comes to opportunistic funds, we take more risks.”
ARA plans to sell the assets this year, but it hopes to operate the shopping malls itself. In Malaysia, apart from five shopping malls, ARA also owns the office component of 1 Mont Kiara Mall, called Wisma Mont Kiara.
“Outside of Malaysia, we have shopping malls, residential units and offices. Bascially, we are open to everything, but we don’t really do industrial or hotels,” says Lim.
This article first appeared in The Edge Malaysia Weekly, on March 3, 2014.
