DTZ Research Report – Malaysia Property Times Q3 2010
Oct 21, 2010
New office supply results in tenant’s market
General business sentiment turned more positive as a result of two consecutive quarters of economic expansion in the first half of the year. As a result, the office market was active with enquiries and higher take-up of space as witnessed by the improvement in net absorption rate.
Nevertheless, the overall occupancy rate of office buildings in Kuala Lumpur decreased slightly from 87.9% in Q2 2010 to 87.1% in Q3 2010 due to the newly completed offices being not fully occupied. There were five new office completions in Kuala Lumpur during the quarter with a total of 1.44 million sq ft of net lettable area (NLA).
Office rents continued to drop marginally in the quarter due to the new supply. Average prime office rents fell from RM6.00 per sq ft per month in Q2 2010 to RM5.98 per sq ft per month in Q3 2010. The market is currently trending in favour of tenants due to the substantial incoming supply in the next few years. 13.7 million sq ft of new office space is in the pipeline between Q4 2010 and 2014
The outlook for the sector remains cautious given that global uncertainties remain. On a positive note, the recently announced Economic Transformation Programme (ETP) is set on creating more jobs, as the programme will shift the economy toward more service-based activities and would hopefully create 3.3 million potential new jobs by the year 2020. This will bode well for future office demand.
Retail market stable despite marginal decline of consumer sentiment
The overall average occupancy rate of shopping centres in Kuala Lumpur remained at 91% in Q3 2010. Rental rates are stable, with some marginal upside of between 3% and 5% in prime retail centres.
Overall, the outlook of the retail sector remains competitive, with an upcoming supply of around 1.78 million sq ft by the end 2010. Average occupancy is expected to fall marginally as the take up rate of new centres experience a slow start. Rentals of new shopping centres especially those at suburban locations will be faced with some downward pressure due to competition from already established regional shopping centres.
The wholesale and retail sector as one of the National Key Economic Areas (NKEAs) will receive special attention that includes market liberalization that could see more foreign retailers entering the market thus creating a more vibrant retail scene.
Residential sector remains the prime mover in the property market
This quarter saw the completion of Hampshire Place and The Troika, adding concern to the high-end condominiums in the city centre being over-supplied as many completed units remain unoccupied. Nevertheless, demand for high-end residential properties in sought- after addresses is relatively good. Strong take-up rates in new high-end developments such as Vox Tower of the Verve Suites, 6 Capsquare and Surian Residences in Mutiara Damansara, Petaling Jaya indicate that the residential sector remains resilient with benchmark pricings achieved in their respective localities.
Overall, average prices of high-end condominiums in Kuala Lumpur increased around 8.7% QOQ to RM600 per sq ft in Q3 2010. Average rents increased 3.5% from the last quarter to RM3.66 per sq ft per month in this quarter.
Mr Eddy Wong, Head of Residential commented: “Generally, the buying sentiment continued to be strong in tandem with the robust growth experienced in H1 2010 and this bullishness is reflected in good responses for new launches”.
Investment market continues to be attractive with REITs still the main players
The real estate investment market recorded more investment activities, in the quarter driven mainly by the REITs injecting properties into their current portfolios or new REIT listings, i.e. Sunway REIT and CapitaMalls Malaysia Trust. Sunway REIT is the largest listing on Bursa Malaysia.
The total investment transactions for the quarter is reported to be approximately RM7bn involving some 37 assets. This represented a 311% QOQ increase in investment transactions and as Brian Koh, Executive Director of Consulting & Research in Malaysia puts it, “The recent announcement of the ETP would drive investment opportunities for the next 10 years focusing on real estate investors and developers in the Greater KL area which includes a Mass Rail Transit network integrating into the current network”.
