LIPPO-MAPLETREE - Lippo Malls Indonesia Retail Trust - Investor ...

Retail Market OverviewIn view of the significant new supply coming online in the Upper Grade shopping malls, Jones Lang LaSalleexpects that competition amongst landlords to attract tenants in this market segment is expected to caprental growth over the next one to two years. However, in parts of the city where there is limited newcompetition in the pipeline, rental outlook should be more promising due to demand outpacing supply andstrong growth in retail sales.In addition, it is also anticipated that rental growth in established shopping malls from the Middle Gradecategory is expected to outperform the market as competition in this sub-market is relatively lighter than inthe Upper Grade sub-market. Newly completed retail malls are expected to enter the market between 2007and 2009. Furthermore, the current high rental gap between Middle Grade and Upper Grade shoppingcentres could provide room for growth amongst good quality Middle Grade malls, especially those locatedin prime CBD areas or within close proximity to the established residential districts.In the longer term, improved rental growth from 2009 onwards is possible in view of slower and moreselective retail developments. A stronger economic foundation after the election year (2009) is also seenas a factor that could potentially boost retail sales from 2009 onwards. As such, rentals are expected togrow by around 8-10% per annum between 2009 and 2011. Malls with high occupancy, particularly thoselocated in the CBD and near prime residential districts, are expected to outperform the market due to theirmore stable frequency of visitors.2.10 Future outlook for the retail sectorRecovery in consumer purchasing power is key to the revival of the retail market in Indonesia. Lookingahead, Jones Lang LaSalle anticipates that the engine of the economy will gear up progressively this year,supported by an improving investment climate and a gradual increase in consumption. Therefore, the retailmarket is expected to gain a stronger foothold, starting mid-2007. In the meantime, competition amongexisting malls to attract tenants will continue to be tough following the emergence of new projects that offermore competitive packages. In Jakarta, Plaza Indonesia, Plaza Senayan and other similar projects, whichlead the competition in terms of rents, now face greater challenges from new projects such as SenayanCity, Grand Indonesia and Pacific Place. Therefore, competition in the upper grade sub-market, which isconcentrated in the CBD area, is greater than in the middle grade sub-market, where future competitorsare more broadly distributed and the target market is greater. Outside Greater Jakarta, particularly in citieswhere the subject properties are located, the level of competition is forecast to be more modest, thusproviding opportunities for higher rental growth in the future.In terms of demand generators, large format anchor retailers such as department stores, hypermarketsand supermarkets will remain key stimulators of demand while smaller retailers with strong brandrecognition and good positioning in the market are expected to continue to increase their storerollouts. Foreign retailers are also expected to continue expanding their presence in Greater Jakarta,one of the world’s 10 largest urban areas, as well as other major Indonesian cities, as part of theirinvestment strategy.By sector, the F&B sector and fashion and accessories retailers offering modern lifestyle concepts areexpected to remain the leaders in generating demand across all sub-markets. Expansions of chainrestaurants and franchise outlets as well as department stores and hypermarkets are expected togenerate strong demand, particularly in the middle to lower grade retail projects. In the upmarketsegment, foreign department stores, branded fashion stores, cafés and restaurants as well as leisureand entertainment facilities should continue to generate substantial demand in the future.F-33