Suria KLCC, Malaysia’s premier retail centre at the iconic Twin Towers complex, is facing a revolt from several of its most established tenants. They are opposing sharp spikes in rental rates and a reorganisation plan that will force many of them to relocate to higher floors.
Over the past year, the mall’s top Malaysian tenants, including luxury brand operators like Royal Selangor Pewter, British India and the Valiram Group, have rebuffed demands by Suria to accept new tenancy terms.
And they have turned to several of the country’s top politicians, including former premier Mahathir Mohamad, to intervene in the dispute, according to correspondence reviewed by The Straits Times.
The retailers say their businesses, which have been hit by the economic downturn, cannot absorb the higher rental rates proposed by Suria.
They are also arguing that Suria’s plan to relocate outlets of several of Malaysia’s home-grown luxury brands, which are now found alongside international high-end brands, to higher floors will further hurt their businesses.
Already, one tenant – British India – has taken its fight to the Malaysian courts with an injunction against Suria to challenge the planned rental hikes and the relocation of its store from the first floor of the six-storey mall to the third level.
While most tenants remain cagey about their rental rates at Suria, documents reviewed by The Straits Times revealed that British India, which also has outlets in Singapore, had its rental rates increased by 33.7 per cent last year and its service charges raised by another 5.1 per cent.
Suria chief executive officer Andrew Brien declined to comment on the criticisms by several tenants over the retail outlet’s rental review and reorganisation of tenants, noting that ‘commercial confidentiality is paramount’.
But Mr Brien, who described Suria KLCC as an ‘iconic international trophy asset’, stressed that the mall was managed to protect and enhance the value of the property.
‘Decisions with regard to managing the assets have to be made for the general good rather than the individual good,’ he said in a recent interview.
Most retailers involved in the face-off with Suria declined to be interviewed or were willing to discuss the issue only on the grounds that they not be named, for fear they may jeopardise already tough negotiations on the renewal of their leases.
Aggrieved tenants argue that Suria and its extremely profitable controlling shareholder, Petronas, should sacrifice their drive to maximise profits and adopt a more flexible business stance to help develop local brands and showcase their products alongside those of international brands such as Louis Vuitton and Tiffany & Co.
‘It is not a question of subsidising local businesses, but there is a strong argument for the mall to adopt a multiple agenda to have a mix of domestic businesses operate alongside international brands,’ said a manager of a local retail outlet who spoke on condition of anonymity.
But proponents of Suria’s management said the mall was not discriminating against Malaysian home-grown brands.
‘There is a science to managing a retail centre and making sure that the client mix and the allocation of space meet with what customers are looking for,’ said a senior Petronas executive who has been tracking developments at Suria since the spat began with several of the mall’s tenants.
He added that Suria was managed as a business and there was ‘a long queue of locals businesses that will take up space based on the rentals set by the management’.
‘For the past six years, Suria’s occupancy has never dropped below 99 per cent. If the mall was doing something tragically wrong, it wouldn’t be achieving those kind of numbers,’ he said.
Suria is 60 per cent owned by Malaysia’s national oil corporation Petronas, which built the Kuala Lumpur City Centre Twin Towers, while the remaining 40 per cent is owned by ING Real Estate of Singapore.
It also ranks as one of Malaysia’s most profitable retail establishments. With roughly 1 million square feet of net retail space available for rental, the six-storey mall attracts about 100,000 visitors daily and rakes in roughly RM1.8 billion (S$743 million) in rental revenue annually for its shareholders, according to company executives.
Unlike other retail centres in Kuala Lumpur, which require costly marketing campaigns to attract customers, real estate industry executives said Suria’s unique location at the foot of the Twin Towers makes it a natural destination for tourists and shoppers.
‘The mall benefits from all the national campaigns that promote Malaysia as a destination, because the Twin Towers is always used to identify the country,’ said the chief executive of a foreign-owned real estate agency in Kuala Lumpur.
Source: Straits Times, 18 Feb 2010
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