AL-SALAM REIT ANNUAL REPORT 2020

56 AL-SALĀM REIT MARKET REPORT SUMMARY As more office workers adopted the work from home, neighbourhood malls with hypermarkets were relatively less effected. Retailers are well visited by many for daily necessities and household sundries. Job insecurity and salary cuts are also causing consumers to be more prudent and selective in purchasing non essentials items and to put more priority on essentials items such as food and health products. The Movement Control Order (MCO) have restricted shoppers mobility, thus encouraging the growth of omnichannel and e-commerce platforms. A one stop shop on a 24 hour operation, without costs associated with hiring staff and rental commitment is attracting a growing number of retailers to move their operation online rather than opening more outlets in retail malls. Mall operators are also re-strategising and investing in e-commerce platforms to help their traditional brick and mortar retailers drive online sales. Despite the rise of e-commerce, shoppers will still opt to visit shopping malls once the pandemic is resolved, for the experiential retail experience which virtual shopping cannot fully replicate. Since pre-COVID-19, some malls in Iskandar Malaysia ie. ToppenShopping Centre and Sunway Big Box have already emphasized an experiential and activity-based environment to enhance shopping experience and boost footfall. The performance of retail malls is severely hit by the COVID-19 pandemic, with Singaporeans previously being major contributors of physical shoppers. Retailers need to restructure their business models and fully embrace the new shopping landscape. Retail malls in Iskandar Malaysia need to have more distinct market positioning and attract shoppers by providing highly memorable shopping experiences. (Extracted from CBRE/WTW Research: 2021 Real Estate Market Outlook Malaysia) CUMULATIVE SUPPLY AND VACANCY RATE OF RETAIL MALL IN ISKANDAR MALAYSIA Vacancy Rate (%) Cumulative Supply (square feet) 0 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 2015 2016 2017 2018 2019 2020 Note: Data for the full year of 2020 is based on estimation Source: CBRE | WTW Research Cumulative Supply Vacancy Rate 0 5% 10% 15% 20% 25% 30% 35% 40% 4. OFFICE The PBO sector in IM experienced the severe sluggish effect of the COVID-19 pandemic. Total supply of PBO space in Iskandar Malaysia (“IM”) remained at 11.3 million square feet as there was no new completion in 2020. As reported by National Property Information Centre (NAPIC) as of 1H 2020, about 71% (8.0 million square feet ) was contributed by privately owned office buildings while the remaining 29% (about 3.2 million square feet ) was government buildings. As of end 2020, we have observed vacancies as high as 45% for PBO buildings in IM. This record high vacancy rate was mainly contributed by the mushrooming of new PBOs over the past few years which was not matched by new demand. The total space occupied was approximately 3.1 million square feet. There are another five (5) PBOs with a total of approximately 1.7 million square feet in the pipeline. Three (3) of the PBOs, UMCity Premium Corporate Office Tower and Medini 10 in Medini, and MVS North Tower in Kota Southkey, were scheduled for completion in 2020.