SOARING rent has forced dozens of small businesses in Kuala Lumpur to close shop as these small-time retailers find it is no longer viable to stay in business.

“For Sale” and “To Let” signs in front of shuttered shops are a common sight, even in the bustling commercial areas of Kuala Lumpur and Selangor,

Chin Chee Seong, secretary-general of the SME Association of Malaysia, told The Malaysian Insight that after the Covid-19 pandemic, rent for 90% of shops has increased by 20-50%.

High rent combined with rising operational costs has made doing business unprofitable, he said.

“It has severely impacted businesses.”

The situation, Chin said, was not helped by the global economic slowdown, supply chain disruptions, rising raw material costs, increased transportation fees, and a weakened consumer purchasing power.

“Supply chain disruptions and rising transport costs have led to higher product prices, which affects consumer spending and subsequently has a significant impact on business revenues.”

Chin said many people don’t have much money.

“The B40 group (the bottom 40% of income earners) relies on government assistance for their daily living. How can they spend it when they are struggling even to afford one meal? Of course, there are some consumers who have the means, but they in turn do not have much confidence in the economy. They prefer to save their money in the bank rather than spend it.”

C. K. Lau, a real estate agent in Petaling Jaya and Kepong, said the number of retail closures in Kuala Lumpur had increased dramatically. That, Lau added, included prime commercial areas of the city like Bukit Bintang and Bangsar.

“Bukit Bintang is not only a commercial and shopping centre in Kuala Lumpur but is also home to many high-end hotels and office buildings. In recent years, due to economic pressures and changes in consumer behaviour, many shops and businesses in this area have faced difficulties.”

He said Bangsar, as a centre for fashion and lifestyle, has also been affected in the post-pandemic economic landscape.

“The wave of shop closures in these areas reflects broader economic challenges.”

Different factors

Lau said Petaling Jaya and Kepong seemed to buck the trend with fewer closures. He attributed this to several reasons.

“First, high foot traffic. The area maintains high customer traffic, which helps sustain business activity.”

The second, he said, was the construction of high-density apartments. Newly built high-density apartments, he pointed out, have increased the number of residents, especially young people, in the area.

“Third, a mature area with diversified services. Simply put, businesses offer a variety of services and goods to meet different consumer needs, enhancing business competitiveness. These factors combined have helped the area better resist economic challenges, avoiding widespread shop closures or sub-leases.”

He said businesses must adapt to market changes and change thier business models and services to stay competitive.

Lau, however, said the shop rental market will likely remain challenging in the second half of the year, with businesses facing continued increasing economic pressure.

“Although many countries are gradually recovering from the pandemic, the speed and extent of economic recovery remain uncertain. This uncertainty can affect consumer confidence and spending, impacting retail market demand. Additionally, ongoing changes in consumer habits, rent adjustments, cost pressures, and intensified competition will continue to pose multiple challenges to the shop rental market.”

To survive in a highly competitive business environment, Lau said tenants will lean more towards short-term rentals. “Many indeed prefer short-term leases.”

He said that due to high market uncertainty, short-term leases offer more flexibility and lower initial costs. “Moreover, short-term leases can help businesses respond to rapidly changing market demands and reduce long-term financial risks.”

Jey Ong, a real estate agent in Cheras, said businesses invest a lot of money in renovations. “Why would they want short-term leases?”

The wave of closures, Ong said, is limited to specific regions, as many businesses are finding it hard to find the ideal shop.

Ong also pointed out that from 2022 to last year, Bank Negara had raised the interest rates five times in just one year, forcing landlords to increase rents. Ong said that unless there are significant changes in the economy, the rent market will remain unstable in the second half of the year. – June 29, 2024.