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Knight Frank launches 4th Edition of Malaysia Commercial Real Estate Investment Sentiment Survey

25 January 2018

24th January 2018, Malaysia – Knight Frank Malaysia, the global property consultancy, launches the Malaysia Commercial Real Estate Investment Sentiment Survey (CREISS) 2018. The survey takes a litmus test of insights and preferences of key players, namely Developers, Fund / REIT Managers and Lenders in the commercial sector for the year 2018. 

Sarkunan Subramaniam, Managing Director, Knight Frank Malaysia says

“Despite the country’s GDP for 2017 estimated between 5.2% and 5.7% being higher than 2016’s 4.2%, the market sentiments amongst Malaysians remain weak amid rising cost of living. Respondents have indicated that Malaysia’s political uncertainty with the general elections this year will be a major factor which will negatively impact the commercial property market in the short term. Many are hoping that the general election will be over with as soon as possible. 

In the meantime, several on-going large scale infrastructure developments such as the MRT will continue to be supportive of the local property market. The survey predicts that the office and retail sub-sectors will continue to be soft moving into 2018. However, there is a strong sense of optimism for the logistics / industrial and healthcare sub-sectors.”

 

Survey Respondents

The survey was conducted using an e-survey mechanism distributed throughout Knight Frank’s vast database with key players in the local commercial sector. 

We had a fair share of respondents in Senior Management levels this year, consisting of:

·         56% : Developers

·         24% : Fund/REIT Managers

·         20% : Lenders

 

Investment by Industry Players

·        Similar to 2017, Developers and Lenders continue to practice caution moving into 2018 as the oversupplied office and retail segments continue to challenge the market.

·        Established REITs continue to see opportunities in the crowded retail segment despite market challenges as many of their well-managed malls continue to maintain high occupancy levels (85%).

·        All respondents appear to be more bullish towards the logistics / industrial and healthcare / institutional sub-sectors in 2018.

 

Investment by Region

·      Moving into 2018, investment activities in Kuala Lumpur are expected to remain stable.

·       In Selangor, the decline in interest from Fund / REIT Managers should be insulated by higher investments from Developers.

·      Penang is expected to see a more vibrant market in 2018.

·      In Johor, although pessimism is growing amongst Developers, Fund / REIT Managers and Lenders will be seeking for more opportunities in the state.

·      Developers and Lenders will be taking a more conservative stance towards Sabah in 2018 although Fund / REIT Managers will be seeking for more deals there.

 

2018 Outlook – Investment Plan by Region

·         Kuala Lumpur maintained its top position as the commercial investment / development destination in 2018 garnering 33% responses, followed by Selangor (26%), Penang (18%), Johor (15%) and Sabah (8%).

·         When compared to 2017, it is noted that respondents’ investment interest in Selangor waned in 2018 with plans to diversify into other regions, particularly Penang.

 

Sub-sectors Investment by Region

·         Kuala Lumpur will continue to be active in the office and retail sub-sectors.

·         Selangor and Johor will continue their dominance in the logistic / industrial sub-sector.

·         For the hotel sub-sector, Kuala Lumpur clinched the top spot, closely followed by Penang.

·         Kuala Lumpur will dominate investments in the healthcare / institutional sub-sector, followed by Selangor and Penang.

 

Most attractive Sub-sectors

·         Logistics / industrial and the healthcare / institutional sub-sectors are the most attractive sub-sectors for the year.

·         Selangor and Johor are seen as the most favourable regions for the logistics / industrial sub-sector.

·         Kuala Lumpur and Penang are seen to be the most attractive for the healthcare / institutional sub-sector.

·         Survey revealed that the hotel / leisure sub-sector garnered strong interests from respondents and  Penang and Sabah are seen to be viable investment destinations.

·         Retail and office sub-sectors are seen to be less attractive as compared to other sub-sectors.

·         The retail sub-sector is slightly more robust despite the supply glut as established Fund / REIT Managers are still achieving strong performance from their retail properties.

 

Favourable and Unfavourable Factors Affecting Commercial Real Estate Investment Sentiment

·         The on-going MRT and infrastructure remains the most favourable factor moving into 2018.

·         The rapid growth in e-commerce will be highly beneficial to the logistics / industrial sector.

·         The respondents in the survey view the government budget more favourably compared to the previous year and they are more optimistic on the FDI inflow and opine that the availability of equity capital will continue to be supportive of the property market.

·         Malaysia’s unpredictable political scene remains unfavourable toward the market.

·         Sentiments continue to remain weak towards property lending guidelines as well as yield / return although the uptick seen in both factors is noteworthy.

 

Performance of Commercial Sub-sectors

·         Approximately half of the respondents view the overall commercial property market performance and the overall economy in 2017 to be fair.

·         The respondents are less optimistic on the performance of the economy and commercial property market moving into 2018. In general, market sentiment remains cautious.

 

Overall Performance and Sentiment by Sub-sectors

·         The respondents were generally not satisfied with the performance of the office and retail segments in 2017 and expect it to worsen in 2018.

·         Despite the overall subdued property market condition, optimism still prevails in selected sub-sectors such as the performance in the hotel / leisure, logistics / industrial and healthcare / institutional and foresee the uptrend to continue moving into 2018 albeit at a more gradual pace. 

 

2018 Forecast Performance by Category and Sub-sector 

Capital Value by Sub-sector

·         More than half of all respondents expect the capital values for all sub-sectors to remain stagnant in 2018.

·         35% and 44% of the respondents expect logistics / industrial and healthcare / institutional assets to increase in value.

 

Rental Value of Office, Retail and Logistics / Industrial Sub-sectors

       50% of the respondents expect rental to fall in the office and retail sub-sectors.

       64% of the respondents expect stable rentals in the logistics/ industrial sub-sector.

 

Average Room Rates (ARR) for Hotel Sub-sector

       In 2018, the hotel / leisure segment has a more optimistic outlook when compared to 2017

       54% of the respondents expect ARR to remain flat, with another 30% projecting an increase in room rates

 

Occupancy Rates for Office, Retail, Hotel / Leisure and Logistics / Industrial Sub-sectors

       51% and 54% of the respondents expect occupancy level of office and retail to decrease.

       47% of the respondents expect the hotel / leisure sub-sector occupancy level to hold.

       54% of the respondents expect the occupancy rates of the logistics / industrial sub-sector to hold.

 

Yield Performance by Sub-sectors

       About half of all respondents expect the overall yield performance to remain stagnant across all sub-sectors.

       39% and 44% of respondents expect yield compression in the office and retail segments as a result of higher vacancy rates.

       One-third of respondents expect yields to increase in the logistics / industrial and healthcare / institutional sub-sectors as a result of the rapid growth in e-commerce and need for quality healthcare.

 

END

 

To download the report, please visit: http://bit.ly/2n7Qrke 

 

For further information, please contact: 

Ms Judy Ong, Executive Director, Knight Frank Malaysia

judy.ong@my.knightfrank.com +603 2289 9663

 

Ms Seline Soo, Marketing & Communications Manager, Knight Frank Malaysia

seline.soo@my.knightfrank.com +603 2289 9669

 

Ms Valerie Cheok, Marketing Executive, Knight Frank Malaysia

valerie.cheok@my.knightfrank.com +603 2289 9667 @KnightFrank_my

 

Notes to Editors

Knight Frank LLP is the leading independent global property consultancy. Headquartered in London, Knight Frank has more than 15,000 people operating from 418 offices across 60 countries. The Group advises clients ranging from individual owners and buyers to major developers, investors and corporate tenants. For further information about the Company, please visit knightfrank.com. 

Knight Frank has a strong presence in Malaysia with its headquarters in Kuala Lumpur as well as branches in Penang, Johor and Kota Kinabalu. The company offers high-quality professional advice and solutions across a comprehensive portfolio of property services and is registered with the Board of Valuers, Appraisers and Estate Agents. The Company is licensed to undertake property, valuations / consultancy, estate agency and property management and is also on the panel of all leading banks and financial institutions. For further information about the Company, please visit www.knightfrank.com.my.