pg. 49 Approach to Value Creation Integrated Annual Report 2025 PORTFOLIO CAPITAL RETAIL SEGMENT OUTLOOK The retail sector continues to see an increase in experiential-led retail, with the food and beverage sector dominating leasing activity, followed by the increasing momentum in the leisure, entertainment, and wellness sectors, with increasingly blurred boundaries across these sectors. Mall strategies continue to evolve, becoming more integrated with surrounding components to retain returning visitors in the immediate vicinity. While the retail sector is expected to sustain its performance into 2026, there are risks of a slight moderation in consumer sentiment following the implementation of SST, while malls are also facing increased operational costs due to the adjustment in electricity tariffs. Klang Valley: The overall retail sector in the Klang Valley showed continued recovery post-pandemic, led by the strong performance of prime retail malls and destination malls, where tenant demand remains strong, attracting international and experiential retail brands. Prime retail malls are expected to continue their outperformance, with mall managers regularly fine-tuning their curation of tenant mixes to stay ahead of the curve, investing in strategic placemaking and reconfiguring space use to serve both tenant and shopper preferences. Prime location is no longer a sole defining characteristic of guaranteed strong rental reversion, thus driving mall managers to be increasingly competitive in creating differentiation for their tenants and shoppers. On the other hand, older, underperforming malls are increasingly struggling to remain relevant and adapt to tenant and shopper needs. Management of these older assets requires cost discipline and innovative leasing strategies to remain relevant as experiential-led retail is expected to continue appealing to younger consumers. Johor: Activity in Johor’s retail sector is primarily centred around key locations such as the city centre, immediate areas surrounding the CIQ complex, and neighbourhoods like Skudai, Tebrau, and Iskandar Puteri. This trend is expected to continue, especially in city centre areas with pedestrian connectivity to the Bukit Chagar RTS Station slated for operations by 2027. Several plots of land in the vicinity of the CIQ complex and RTS station are also currently being developed as mixed-use, commercial-centric projects, integrating office space, hotels, retail, residential, and transit-oriented uses. Johor’s retail market is expected to remain resilient despite an influx of retail spaces in the city centre, such as SKS City Mall, Gem @ Coronation Square, and Sunway’s upcoming retail podium directly attached to the Bukit Chagar RTS Station. With the Visit Malaysia Year 2026 and Visit Johor Year 2026 campaigns, the retail sector in 2026 is expected to perform well, supported by tourist activities. Suburban and community malls are expected to remain resilient with a tenant mix focused on F&B and services to cater to the immediate neighbourhood. In view of this, Al-Salām REIT expects its retail portfolio to continue to outperform in 2026, underpinned by stronger earnings expected for KOMTAR JBCC, given the nearing completion of infrastructure catalysts, which will directly benefit the mall. Furthermore, the REIT’s community mall in Kempas is expected to maintain its strong occupancy levels, with some refinement of the tenant mix to cater to neighbourhood preferences.
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