Knight Frank Malaysia, a prominent Malaysian property consultant, recently released its latest property market report; Real Estate Highlights 2nd Half 2019. The report covers various property sectors in Kuala Lumpur, Penang, Johor Bahru and Kota Kinabalu.
Kuala Lumpur High-End Condominium Market
Under Kuala Lumpur’s high-end condominium market, as of the second half of 2019, the report states that the cumulative supply of high-end condominiums/residences currently stands at 59,358 units following the completion of five projects namely Tower 1 @Star Residences (557 units), Aria KLCC (598 units) and Stonor 3 (400 units) in the Kuala Lumpur city while Novum Bangsar (729 units) and Sunway Mont Residences (228 units) are located in the city fringe.
According to the report, by the first half of 2020, another 11 projects are scheduled for completion.
“Collectively, these projects will add some 6,151 units to the cumulative stock. They are Tower 2 @Star Residences (482 units), 8 Kia Peng (442 units), Sky Suites (986 units), The Manor (212 units), Novo Ampang (421 units), 18 Madge (50 units), The Estate (328 units), Agile Mont’Kiara (813 units), Arte Mont’Kiara (1,707 units), TWY Mont’Kiara (484 units) and One Kiara (226 units).”
The report adds that during the period under review, there were four notable projects that were launched or previewed. This includes Alix Residences in Dutamas, North Kiara; Agile Embassy Garden by China-based Agile Group Holdings Limited at Jalan Ampang, Conlay along Jalan Conlay in Kuala Lumpur and Core Residence, one of the residential components at the Tun Razak Exchange (TRX).
In terms of prices and rentals, the report states that within the Kuala Lumpur city itself, the pricing for newly launched projects such as Core Residence and Conlay exceeds the RM2,000 per sq ft mark. The gross selling price for Core Residence, located within the TRX precinct, averages about RM2,200 per sq ft, while Conlay is in the region of RM2,050 per sq ft.
Additionally, Agile Embassy Garden sets a new benchmark pricing of RM1,900 per sq ft (gross) within the exclusive locality of Ampang Hilir/U-Thant against Impression U-Thant’s RM1,700 per sq ft when it was launched in 2018.
Meanwhile, Alix Residences in Dutamas, North Kiara was previewed in June 2019 at RM900 per sq ft onwards.
Despite these prices, Knight Franks says that in general, most new developments are still offering discounts between 5.0% to 10.0%.
Regarding the outlook for the Kuala Lumpur high-end condominium market, the Knight Frank report states that the Federal Territory of Kuala Lumpur registered a total of 5,289 transactions valued at RM4.17 billion in the first half of 2019. Despite a 7.0% increase in transacted volumes, the value of transactions was lower by 4.4% compared to the first half of 2018 (4,942 transactions worth RM4.36 billion).
“The higher level of market activity may be driven by the on-going national Home-Ownership Campaign (HOC) 2019 which was extended to 31 December 2019. The HOC has been favourable to both developers and buyers. As of November 2019, a total of 28,000 property units valued at RM21 billion have been reportedly sold, surpassing the initial HOC’s sales target of RM3 billion.”
The report adds that there were several government initiatives announced under the National Budget 2020 that are expected to further stimulate the lackluster property market. Among these initiatives is the revision of the base year for Real Property Gains Tax (RPGT), lowering the foreign buyer threshold from RM1 million to RM600,000 for unsold high-rise properties in urban areas and the introduction of the Rent-to-Own financing scheme among others.
“The overall outlook for the Kuala Lumpur high-end residential market remains challenging amid the supply and demand imbalance. However, with the local developers aggressively marketing their high-end residential products abroad coupled with the various available initiatives and incentives to stimulate the property market, we expect to see more sales moving into 2020 – helping to ease the current glut in the high-end property segment.”
Klang Valley Office Market
For the Klang Valley office market, the Knight Frank report says that the completion of two office buildings in Selangor (1 Powerhouse Building and Tropicana Gardens Office Tower) contributed to a total of 0.82 million sq ft in office space, bringing the cumulative supply of purpose-built office space in the Klang Valley to approximately 108.07 million sq ft as of the second half of 2019.
In Kuala Lumpur city, two office buildings; TS Law Tower and Legasi Kampung Bharu with a combined Net Lettable Area (NLA) of approximately 510,000 sq ft are expected to be completed within the second half of 2020.
The report adds that there are an additional five buildings in Selangor that are also expected to be completed in the same period, namely Block G & Block J @Empire City, Q Tower @Twentyfive.7, Tower 5 of PJ Sentral Garden City and i-Bhd Corporate Tower.
“The overall occupancy rate of purpose-built office space in Kuala Lumpur city experienced a downtrend to record at 70.4% in the second half of 2019 compared to 77.1% in the first half of 2019, as newly completed buildings continue to compete for a limited pool of demand.”
In terms of prices and rentals, Knight Frank states that during the review period, the average achievable rental in KL City was analysed higher at RM7.28 per sq ft per month compared to RM7.11 per sq ft per month in the first half of 2019, despite challenges in the tenant-led market.
“This was mainly attributed to the higher achievable rental rates in newly completed buildings, namely The Exchange 106 and Menara Prudential, which were designed to the highest specifications,” the report says. “As for the Kuala Lumpur fringe and Selangor, the average achieved rentals remained resilient at RM5.80 per sq ft per month and RM4.31 per sq ft per month respectively in the second half of 2019. Newer dual-compliant (MSC and Green Building Index) buildings such as Menara Ken TTDI and Symphony Square continue to garner the interest of occupiers/tenants and enjoy commendable take-up rates.”
In Kuala Lumpur, the report states that the asking rentals of well-located Grade A office space range from RM6.00 per sq ft to RM12.00 per sq ft per month, while in Selangor, a similar grade office space command competitive rentals ranging from RM4.50 per sq ft to RM6.00 per sq ft per month.
For the Klang Valley office market outlook, Knight Franks mentions that in the new Central Business District (CBD), the completion of better grade/Prime A+ office space continues to heighten competition as landlords of existing and new buildings compete for the same pool of tenants and occupiers.
“On a positive note, investment incentives announced in the recent National Budget 2020 to encourage more inbound investment from Fortune 500 companies and ‘Global Unicorns’ in the high technology, manufacturing, creative and new economic sectors over the next five years coupled with concerted efforts by InvestKL in attracting more Multinational Corporations (MNC) to invest in the country, will have a multiplier effect on the country’s economy and real estate market due to the creation of more job opportunities. Newly completed buildings in on-going mega-developments such as TRX and other matured economic clusters which offer good and high specification office space at competitive rentals as well as attractive tenancy terms will also appeal to this category of occupiers.”
It adds, “Meanwhile, the matured decentralised office markets in Kuala Lumpur fringe and Selangor, are expected to hold steady supported by strong domestic and regional occupier demand.”
“The growing availability of good grade space at competitive rentals in the city fringe and decentralised office locations heightens competition in the tenant-led office market. Well-connected office locations supported by improved road and rail infrastructure as well as a wide array of amenities continue to garner strong demand.”
Knight Frank also says that they see a growing trend of old/dated office buildings being repurposed for new/alternative use depending on the location and neighbourhood/surrounding developments etc.
“With the current oversupplied office market, there are developers reviewing their approved/proposed office developments for other potential uses.”
Klang Valley Retail Market
On the Klang Valley retail front, the Knight Frank report comments that the cumulative supply of retail space in Klang Valley remains at 60.48 million sq ft as of the second half of 2019. Despite completions, new malls are delaying their opening to 2020.
“By the first half of 2020, six shopping centre/supporting retail components within integrated developments with a collective retail space circa 2.23 million sq ft are scheduled for completion/opening. These include, Tropicana Gardens Mall, Pacific Star retail podium, retail components at The Exchange 106 @TRX & Lot 91 @KLCC, KL East Mall and Queensville Lifestyle shopping mall.”
Amid heightened competition and increased challenges in the retail market, Knight Frank says that selected existing shopping centres have embarked on Asset Enhancement Initiatives (AEI) cum rejuvenation plans to cater to current shopping habits.
The review period also sees the expansion and downsizing/closure of selected hypermarkets due to challenges in the business operating environment.
In terms of prices and rentals, according to the report there were no notable transactions during the period under review.
For the Klang Valley retail market outlook, Knight Franks says the retail industry continues to witness the radical move towards an omnichannel approach – bricks and clicks.
“Taobao continues its expansion in Malaysia. Following the opening of its first Taobao Home Experience Centre at Jaya One in Petaling Jaya, it has now opened a physical store spanning over 5,000 sq ft at MyTown Shopping Centre. The outlet offers a wide range of products from electronics to home appliances and make-up. It also features new retail technology such as QR codes and electronic price tags.”
“China home living brand Samanea by LESSOHOME has gone online. The brand, which opened its first outlet spanning more than 165,000 sq ft in Glo Damansara, occupying more than 80 lots from the ground floor to level three of the mall, has collaborated with Lazada via an online product experience concept store that displays products ranging from furniture to electronic goods, where purchasers are able to visit the store to touch and feel the product before purchasing the items through the Lazada online app.”
“1Utama Shopping Centre is the first mall in Malaysia to adopt a retail cashless system. Besides its digital 1PAY e-wallet, the mall has also launched its online shopping platform.”
Knight Franks adds that to survive in this digital age, shopping centres will need to re-invent themselves as retail spend continues to shift online.
“In the short to medium term, we expect to see more operators and retail players embracing technological changes as well as interactive cum experiential engagements to drive footfalls and boost sales as the country’s e-commerce market which had reportedly tripled in size since 2005 continues its strong growth momentum.”
Klang Valley Industrial Market
According to the Knight Frank report, the existing supply of industrial space designated for logistics and warehousing use in Klang Valley as monitored by the property consultant totalled circa 41 million sq ft as of 2018 with more than half of the space found in the localities of Shah Alam/Bukit Jelutong and Port Klang/Bukit Raja. The strategic locations of these areas surrounded by mature neighbourhoods with well-connected infrastructure coupled with their proximity to Port Klang are key catalysts.
“In the locality of Shah Alam/Bukit Jelutong, notable existing mega logistics/warehouse facilities with at least 500,000 sq ft of space include Mapletree Logistics Hubs Shah Alam at Section 22, CEVA Logistics Central Distribution Centre (CDC 1&2) at Bukit Jelutong and PKT One Logistics Hub and DHL Malaysia Integrated Logistics Centre at Section 23 in Shah Alam. Meanwhile, Alpha Galaxy’s National Distribution Warehouse is notably the giant facility in the locality of Bukit Raja.”
The report says that collectively, these mega facilities in the localities of Shah Alam/Bukit Jelutong and Port Klang/Bukit Raja account for circa 6.6 million sq ft of logistics/warehousing space.
For demand, it is noted that substantial existing logistics/warehouse space owned by investors/real estate investment trusts (REIT) with the majority of these assets tenanted by logistics companies. Key tenants of industrial assets owned by Axis REIT and Atrium REIT include Agility Logistics, CJ Century Logistics, LF Logistics and so forth.
“Moving forward, the exponential growth in Malaysia’s e-commerce sector will likely provide a strong tailwind for businesses of logistics companies, which will, in turn, increase the demand for logistics/warehousing space.”
On prices and rentals, Knight Frank states that the renewable rental rates for notable existing facilities such as Mapletree Shah Alam logistics Park and Mapletree Logistics Hub, which are close to full occupancy are likely to be trending upwards. The favourable rental rates are mainly due to the lack of modern warehousing space with high specification in the established locale of Shah Alam.
“Meanwhile, the asking rental rates for the newly completed Galaxy Logistics Hub in Puncak Alam is in the region of RM1.65 per sq ft per month. As for the upcoming industrial developments in Shah Alam, namely Hap Seng Industrial Hub and D Project Malaysia I, the asking rentals hover between RM1.80 per sq ft and RM2.50 per sq ft per month depending on the scheme, type and size of space, specification and other value factors. The newly completed Area Logistics @Ampang in the fringe of Kuala Lumpur city commands asking rentals in the region of RM2.00 per sq ft per month.”
On the outlook for the Klang Valley industrial market, the growth trajectory of Selangor’s industrial property market is expected to continue as a result of the state’s robust manufacturing sector coupled with the positive trend in the logistics segment.
“The expansionary Budget 2020 supports the growth of the logistics sector with the Federal Government allocating RM50 million for the repair and maintenance of roads leading to Port Klang. The plans to elevate Port Klang as a regional maritime centre and cargo logistics hub combining manufacturing, distribution, cargo consolidation, bunkering as well as ship repair further favours the state’s industrial sector.”
It adds, “The on-going East Coast Rail Link (ECRL) which aims to connect Port Klang on the Straits of Melaka to Kota Bahru in the South China Sea, would be a boon for the logistics sector as freight and shipping time will be reduced significantly. Time efficiency plays an important role in logistics and supply chain management, and as such, key infrastructure investments will continue to draw the attention of investors and industrial players.”
Moving into 2020, Knight Frank says the outlook for the industrial sector remains promising.
Penang Property Market
For Penang, general market sentiments are still in the doldrums as the economy has yet to pick-up.
“Despite achieving a record RM13.2 billion in total approved investments in the manufacturing sector for the first nine months of 2019, Penang’s economy is not enjoying any buoyant optimism.”
The research adds that the residential sector is still in a state of consolidation as evidenced by the lack of new launches and fewer transactions especially for high-end condominiums. Rentals have also generally weakened and the trend is expected to continue.
“On the other hand, the office sector is still relatively healthy with the current supply remaining steady at the first half of 2019’s level of 5.71 million sq ft for buildings of 10-storey and above. With little or no new incoming supply until 2022, the market for office is anticipated to remain healthy with good occupancies expected to continue for the prime buildings.” It says. “Similarly, the industrial sector is still holding out quite well. The remarkable garnering of RM13.2 billion in total proposed investments from 113 projects in the manufacturing sector in the first nine months of the year has set the right mood for this sector resulting in increased marked activity, for both sale and leasing. Future demand and outlook remains optimistic.”
The report also adds that the retail sector will be facing challenging times and the weaker malls will face increasing downward pressures on both occupancies and rentals. The stronger leading malls with good tenant mix, good management and track record are expected to stay resilient although they will be operating in a tough environment in the short to medium term.
Johor Property Market
In Johor, the long-awaited Rapid Transit System (RTS) linking Bukit Chagar in Johor Bahru and Woodlands in Singapore has finally received the green light to proceed.
“In addition, the government has allocated RM85 million during the unveiling of Budget 2020 to improve traffic flow along the Johor Bahru – Singapore causeway. Besides improving efficiency and movement between the neighbouring countries, these positive infrastructure developments will indirectly boost economic activities and property developments in the state.”
The report further adds that the State Government has announced that they will collaborate with Iskandar Regional Development Authority (IRDA) to introduce the Bus Rapid Transit (BRT) route in Iskandar Malaysia’s region as part of the initiative to promote the public transport usage and indirectly enhance the connectivity across the region.
It continues by saying that despite the current residential property overhang in the state, developers offering competitively priced products catering to the mass market remains optimistic. The transactional and rental markets in the high-end residential segment, however, remains lackluster attributed to the limited pool of potential buyers cum investors/tenants and high supply pipeline.
On the Johor retail front, it is expected to remain resilient in the short term although another 1.1 million sq ft of space is expected to come on-stream by 2020. More brands and retailers are making their debut and expanding in the southern state despite heightened competition and weak consumer sentiment.
Kota Kinabalu Property Market
The overall residential market in Kota Kinabalu recorded a slight improvement in 2019, the report states, presumably due to the on-going national Home Ownership Campaign (HOC).
“The high-rise residential segment was relatively moderate in terms of new launches, as the market continues to absorb existing inventories. However, demand for well-designed and attractively priced high-rise projects in desirable locations is expected to remain relatively strong.”
It further adds, “On the other hand, landed housing schemes that are well-supported by surrounding amenities continue to generate public interest.”
The purpose-built office sector is expected to hold constant in terms of occupancy and rental, with no immediate incoming supply. Meanwhile, the market is currently observing a sizeable influx of commercial products that are designed to cater for Short-Term Accommodations (STA).
“In light of this, the region is expected to take time to absorb the existing and impending supply. These products can be utilised for commercial purposes or own use, though the compact sizes of some proposed developments may limit this flexibility. However, demand for well-priced developments situated in mature locations is expected to remain resilient.”
For the retail sector, Knight Frank mentions that it will continue to see leading malls focus on tailoring their tenant mix to suit the needs of their respective target markets, in addition to paying greater attention to their F&B offerings.
Also in tourism, Sabah’s blooming tourism industry is anticipated to experience sustained growth in line with the continued establishment of new tourism products, expansion of human capital and market diversification of visitor arrivals.
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