I recently read an article about KAP Mall. In it, the owners of the strata retail units are going to court against the developer. Also, the agency that sold these units is dealing with a problem related to not representing things accurately.
I won’t get into the details of the misrepresentation issue; you can look that up the news if you’re interested. Instead, I’d like to focus on strata retail units. With the increase in ABSD, more investors might be interested in buying these units again.
In the world of retail, strata retail units are a unique and distinct category, quite unlike the large shopping malls managed by experienced landlords like Capitaland and Lendlease etc. While the latter invest significant resources in marketing, tenant mix optimization, and dedicated mall management teams, strata retail malls present a different set of challenges and opportunities for individual owners. In this post, we’ll explore the dynamics of strata retail units and discuss the key factors that you will have to take note of.
The Strata Retail Landscape
To understand strata retail units, it’s essential to grasp their fundamental nature. Unlike conventional shopping malls, where a single landlord oversees all aspects of the property, strata malls consist of individual units owned by different people. This decentralized ownership structure has several implications that impact the way these retail spaces function.
Lack of Centralized Decision-Making
One of the most significant distinctions of strata retail units is the absence of centralized decision-making when it comes to tenant mix. In a traditional shopping mall, the landlord carefully curates a mix of tenants to create synergy and appeal to a broad customer base. This process involves extensive market research and strategic planning.
In contrast, strata owners typically have full autonomy over their units, including the choice of tenants. This decentralized decision-making can lead to a diverse array of businesses within the same complex, which can be both a strength and a challenge.
Limited Marketing Investments
Another critical difference is the limited investment in marketing and promotion. Large mall operators like Capitaland and Lendlease allocate substantial budgets to create awareness, attract foot traffic, and promote the mall as a whole. They leverage economies of scale and expertise to execute effective marketing campaigns.
However, in strata malls, individual owners often lack the resources or incentive to invest in comprehensive marketing efforts for the entire complex. This can result in a lack of overall visibility and branding for the strata mall as a whole.
Every Owner for Themselves
In strata retail, every owner essentially operates their own business, focusing on their unit’s performance without considering the broader picture. This autonomy can lead to varying levels of commitment to the overall success of the complex. While some owners may invest heavily in maintaining and improving their units, others may neglect them, affecting the overall appeal of the strata mall.
Conclusion
Strata retail units may not have the centralized support and resources of large shopping malls, but they offer a unique and decentralized business environment. Success in strata retail hinges on the ability of individual owners to collaborate, innovate, and create a compelling customer experience, which I feel is hard to achieve.
I have clients who own strata retail units, and I can tell you firsthand, it’s not an easy journey for them. It’s tough to find tenant, and the rent they get is usually very low. Adding to the challenge, there are monthly maintenance fees to pay, which eat into their earnings. Often, the malls remain empty, with many units sitting vacant.
These owners were enticed by the idea of owning a freehold property at a lower cost, but they ended up facing difficulties when it comes to selling these units. I’m relieved that I didn’t recommend these units to them; otherwise, I wouldn’t know how to face them. I made a conscious decision not to promote such properties, even when they were popular and offered high commissions.
This type of investments can tie up your money for a long time without much potential for capital appreciation. You will need to consider the opportunity cost. Personally, I would advise against investments like these. If you’re thinking about buying something similar, please discuss it thoroughly with your property agent first and do your due diligence. Your financial well-being is important, and it’s crucial to make informed decisions about your investments.