Property Times
Klang Valley & Environs | Q2 2009 | KDN No: PP11712/5/2009
Investors, owners, occupiers and developers | A quarterly report on the Malaysia property market
Office Market
Office sector remained stable with no new supply added to the market
The office sector, especially the prime Grade A office space segment, was stable in terms of average monthly gross rents during the quarter. This is attributed mainly to the fact that there was no new completion of office space in the city centre, and most of the prime office buildings were close to full occupancy at the time of review.
Rents of prime office space in Q2 2009 remained unchanged at an average of RM6.14 per sq ft per month. In terms of office space occupiers, most of the tenants are still coming from multinational companies in the oil- and gas-related and information technology sectors. Meanwhile, there has also been some expansion of serviced / virtual office providers who provide office accommodation in serviced business centres, with modern, innovative and technologically equipped office spaces for companies seeking fast and fuss-free space. Among the popular serviced office providers are Nomad, Regus and CEO Suites.
However, the impending supply of some 3.43 mil sq ft in Kuala Lumpur city during the second half of the year is expected to exert downward pressure on occupancy rates and rental rates of new office buildings. Approximately 1.273 mil sq ft will be prime Grade A office space located within the Golden Triangle Area (GT). Among them, the two most significant projects are GTower and The Icon, each with approximate area of 500,000 sq ft. Meanwhile, a new office project named 348 Sentral, jointly developed by MRCB (developer of KL Sentral) and Gapurna Group, commenced its ground work in April. Comprising some 567,124 sq ft, it will be completed by 2012. As reported, Shell Malaysia will be its anchor tenant, leasing 340,000 sq ft for 15 years.
Landlords of upcoming buildings are facing a challenging time ahead to secure anchor tenants. The on-going financial crisis has put a halt to business expansion, which also affected the demand for new office space. In addition, prime office buildings are facing keen competition from new office buildings outside the city centre, especially in the decentralised areas in Petaling Jaya, along the stretch of Jalan Semangat in Section 14 as well as those fronting Federal Highway. These newly completed buildings command cheaper rents as compared to prime Grade A office in the city centre. In order to secure quality anchor tenants for space in the new office buildings, landlords are offering incentives such as longer rent-free and fit-out periods.
The outlook of the office sector is challenging with downward presure on rental and capital values due to weak demand and the new supply that will be completed in the next few years. The downward trend may however be cushioned by the government’s recent liberalization on economic policies targeting the services and financial sectors. The relaxation in policies is expected to promote foreign direct investment, with more foreign interests in the commercial property sector specifically.
Office Market Outlook
Q2 2009 12 months Outlook Average Monthly Gross Rents ▼ Source: DTZ Research July 2009
5.9 6.0 6.1 6.2 6.3 6.4 6.5 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 RMpsf
Average Monthly Gross Rents of Prime Office Space in Kuala Lumpur
Source: DTZ Research July 2009
Major Buildings Under Construction in Kuala Lumpur
Building Location NLA (sq ft) Completion Exp, The Icon Jalan Tun Razak 500,000 Q3 2009 GTower Jalan Tun Razak 500,000 Q4 2009 Source: DTZ Research July 2009
Newly Completed Office Buildings Outside Kuala
Lumpur
Building Location (sq ft) NLA (RM per sq ft) Asking Rent PJ City Fronting Federal Highway 194,500 4.50 PJ 8 Fronting Federal Highway 323,000 5.00 Quill 9 Jalan Semangat 280,000 4.50 PJ Trade
Centre
(Tower A) Damansara Perdana 200,000 4.50 Source: DTZ Research July 2009
Potential Supply of Office Space (NLA)
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 2009 2010 2011 2012 2013 mil sq ft
Prime: GT Prime: CCA Prime: Decentralized Area Secondary: GT Secondary: Decentralized Area Completed Supply in H1 09
Notes:
GT = Golden Triangle CCA = Centralized Commercial Area Source: DTZ Research July 2009
Retail
Cautious consumer spending amidst worsening economic condition
The retail market remained weak due to the economic slowdown.
Although the Consumer Sentiments Index (CSI) in Q1 2009 recovered slightly by 7.5 points QOQ, consumers are still cutting back on spending plans in anticipation of a worsening of the economy.
Household income continued to deteriorate while job and financial prospects remained gloomy. In particular, the manufacturing sector in April saw a 7.7% decline YOY in number of employees (1.1% decline on month on month basis) and a 9.4% decline YOY in wages and salaries. According to the latest Economist Intelligence Unit (EIU) Report, retail sales is expected to decline by 7.2% in 2009 compared to the historical average growth of 13.3% per annum in the last 3 years.
There was no significant change in the occupancy of shopping centres as at end Q2 2009, which remained at above 90%. There was
still demand coming from hypermarkets and retailers in the food business which cater to basic neccessities. Some of them are even looking into expanding their retail outlets in upcoming shopping centres located in established and strong residential neighbourhoods. The most affected retail sub-sectors are the fashion and high-end retailers, who are already experiencing contraction in sales and are skeptical about expanding in new shopping centres.
Rents in prime shopping centres remained stable as they are less vulnerable to the economic slowdown. Key centres like Suria KLCC,
Mid Valley Megamall and 1 Utama which enjoy high occupancy levels and visitor flows are expected to hold up well in rents. However, new and upcoming centres that are currently under construction are expected to experience downward pressure in targeted rents in their efforts to build up occupancy to a higher level. Meanwhile, most of the retail REITs reported relatively flat revenue for Q1 2009, including Starhill (0.3% increase).
KL Plaza Shopping Centre was closed for major upgrading work, taking off some 230,000 sq ft from total stock. New construction commencements included Lot G of KL Sentral which comprises a 700,000 sq ft retail mall, an office tower and a hotel block. The mall is targeted to complete by end 2012. Meanwhile, SP Setia and Lendlease announced their venture to jointly develop a new mall in Setia Alam on 30 acres, with a gross built up of over 1 mil sq ft, while the development of I-City mall could be delayed due to the freeze on capital investment by its JV partner, CapitaLand. With the oversupply of retail malls in the market, it will be a real testing time for shopping malls, especially those in the secondary area with poor population catchments. These malls would have to struggle with take up of space.
Prospects for the retail sector are expected to be weighed down by the continued contraction in the economy, which is forecasted to recover only in Q4 2009. In Q3 2009, Malaysia Mega Sale, which could
cheer up the retail market with more tourists coming from the Middle East, may be affected by the global H1N1 flu epidemic. This will pose further challenges to the industry, which is facing increasing operating costs and lower revenues.
Retail Market Outlook
Q2 2009 12 months Outlook Average Monthly Gross Rents ▼ ▼ Source: DTZ Research July 2009
Source: DTZ Research July 2009
Source: DTZ Research July 2009
Source: DTZ Research July 2009
Upcoming Retail Centre in 2009
Project NLA (sq ft.) Location
Wangsa Walk 273,243 Wangsa Maju BSC West Wing Annex Extension 70,000 Bangsar Subang Avenue 250,000 Subang Jaya Source: DTZ Research July 2009
Existing Supply of Retail Space in Klang Valley
19.0 19.2 19.4 19.6 19.8 20.0 20.2 20.4 Kuala Lumpur
Outside mil sq ft Kuala Lumpur
Potential Supply of Retail Space in Klang Valley (NLA)
0.0 0.5 1.0 1.5 2.0 2.5 2009 2010 2011 mil sq ft 0 5 10 15 20 25 30 35 40 45 2004 2005 2006 2007 2008 H1 2009 'mil sq ft
Residential
Market confidence buoyed by the recent stock market rally
Buyer interest returned in Q2 2009, particularly toward the later part of the quarter. The recently reported rise of the Kuala Lumpur Composite Index (KLCI) has somewhat restored investor’s confidence, especially in high-end residential properties. Returning buyer interest was also motivated by low bank lending rates, more realistic asking prices and the difficult-to-resist freebies, incentives and attractive packages offered by some property developers.
There was an increase in residential transactions, especially in the sub-sale market, which experienced an increase in sales transaction. Projects which have seen improved sales enquiries and take-up included the preview launch of Eastern & Oriental Bhd’s (E&O) St. Mary serviced apartments in the Golden Triangle in June. About 85% of the 169 units were snapped up.
Prices continued to undergo corrections and are expected to continue softening in the short term in view of impending new supply and weak economic conditions. Generally, prices of high-end condominiums in the KLCC area have dropped by between 10% to 20% YOY, and 3.7% QOQ. Two projects, namely Hampshire Residences and Pavilion Residences, were completed and issued with certificates of fitness (CFs) in the quarter, whereas four other projects have been completed pending issuance of CFs. They are The Oval, The Avare, One KL and Binjai on the Park. In the meantime, five projects are expected to be completed by the second half of 2009, supplying 951 units of high-end condominium units to the market.
The overall rental market picked up slightly during the quarter as a result of improved market confidence. Average rents of high-end condominiums in the KLCC area increased by 6.5% QOQ to RM4.08 per sq ft per month. However, the rental market is expected to face a downward pressure as a result of incoming massive supply of condomionium units in and outside the city centre during the second half of 2009 and towards the early part of 2010.
The residential sector would be challenging over the next six monthsas any improvement in economic situation is not expected until Q4 2009. On a positive note, the recently announced overhaul in economic policies, particularly on the repeal of the foreign investment committee’s (FIC) approval for property transactions involving foreigners (where there is no dilution of interest involving Bumiputra or government), would boost interest from foreigners in the local property market, specifically on the high-end residential segment.
Residential Market Outlook
Q2 2009 12 months Outlook
Average Capital Values ▼ ▼
Source: DTZ Research July 2009
Capital Values & Rents of Prime Condominiums in Kuala Lumpur
0 100 200 300 400 500 600 700 2003 2004 2005 2006 2007 2008 Q1 09 Q2 09 Capital Values (RMpsf) 3.35 3.40 3.45 3.50 3.55 3.60 3.65 3.70 3.75 Rent (RMpsf pm)
Capital Values Rents
Source: DTZ Research July 2009
Upcoming Condominiums in KLCC Area in H2 2009
Project Units Idaman Residences 248 The Troika 229 Ampersand 71 Hampshire Place 186 Fraser Residences KL 217 Total 951 Source: DTZ Research July 2009
Future Supply of Prime Condominium in Kuala Lumpur
0 500 1,000 1,500 2,000 2,500 3,000 3,500 2009 2010 2011 Units
City Center Outside City Center
Investment
No active sellers and buyers on the market
With the world economy still in a limbo and limited good news on the business front, investment activities remained subdued, especially from foreign investors. They are by-passing Malaysia for greener pastures in other countries, which offer better opportunities at this moment. Local sellers are also not motivated enough to place their properties in the market in the current weak market conditions, which is not likely to generate offers that will meet their price expectation levels.
There were only two major transactions in the quarter, of which one is between related parties. It was reported in May that Berjaya Times Square Sdn Bhd, a subsidiary of The Berjaya Group, sold their exhibition space of 13,369 sq ft within the Berjaya Times Square Shopping Centre to a Biofield Sdn Bhd, a subsidiary of Cosway Bhd, a related party, for RM10.5 mil or RM785 per sq ft.
The other transaction was the sale of 291-room Novotel Hotel to the Nomad Group. It is an up and coming hospitality group which has been on an active buying spree since two years ago, with the acquisition of two serviced apartments and the establishment of several serviced offices. The sale of shares in City Centre Hotels Sdn Bhd (the SPV of Novotel Hotel) was RM47.3 mil, which we understand to reflect an asset value of RM156 mil or about RM536,000 per room. However, the above transactions do not provide much indication about price benchmarking nor its future direction.
Nevertheless, there are still some investors out in the market looking for commercial properties with investment value. There are market talks that an offer has been made for a portion of the shares of Inverfin Sdn Bhd, the owner of Menara Citibank, of which a sale transaction was aborted previously. It reflects an asset value in the range of between RM800-900 per sq ft.
Without more transactions, it is currently getting more difficult to exactly pin point pricing and yield level with any degree of accuracy, despite the acute need for a “mark to market” valuation of assets in this turbulent time. Over the next 6 months, sentiment is likely to recover with some investment activities by opportunistic funds but this will be selective and driven by value hunting.
Investment Sales Outlook
Q2 2009 12 months Outlook
Sales Volume ▼ ▼
Source: DTZ Research, July 2009
Major Investment Sales in Q2 2009
Building Purchaser (RM mil) Price (RM per sq ft) Price Exhibition hall at Berjaya Times Square Shopping Centre Biofield Sdn Bhd (an affiliated company of Berjaya Group) 10.5 785
Novotel Hotel Nomad Group 156 - Source: DTZ Research July 2009
Total Investment Sales in Malaysia by Quarter
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 RM (mil)
Source: DTZ Research July 2009
Source: DTZ Research July 2009
Investment Sales in Malaysia by Sector (Q1 2008 to H1 2009)
Retail 10% Others 6% Office 68% Residential 16%
Explanatory Notes
Area Taxonomy
Study Area
Klang Valley & Environs (KVE) is located
centrally within the State of Selangor.
KV itself accommodates the Kuala
Lumpur City (KLC) and the State’s
District of Petaling, Klang, Gombak and
Hulu Langat. Its environs would include
surrounding growth areas such as
Cyberjaya, Putrajaya City and the
Sepang localities. The KVE property
market is divided into two distinct
geographical areas: KLC and other
areas in KVE (OKVE).
Business Space (office)
The office market in KLC is sub-divided
into three sub-markets: Central
Commercial Area (CCA), Golden
Triangle (GT) and Decentralised Areas
(DA). DA will comprise areas fringing
the city centre. The office market within
OKV is sub-divided into six sub-markets
– Petaling Jaya (PJ, Subang Jaya (SJ),
Shah Alam (SA), Klang, Puchong and
Ampang.
Retail
Retail complexes within the city and
main town centres are referred to as
“urban areas”. Those located within
commercial areas of residential estates
in KV, other than city or town centres,
are defined as “suburban”.
Stock
Business Space (office)
Refers to purpose-built office or
mixed-use premises with net lettable areas of
50,000 sq ft or more. It excludes
buildings developed and solely used by
Federal and State Government or
government-related organisations. The
stock is defined into two distinct
categories as follows:
Prime – buildings are those with
advanced “Building Automation System”,
high level of computerised M&E and
‘state-of-the-art’ telecommunication.
Secondary – buildings are those with
average/basic office accommodation.
Retail
Stock includes purpose-built shopping
complexes with net lettable areas of
50,000 sq ft or more. The stock is
defined into two distinct categories as
follows:
Prime – complexes with good layout,
design, management, maintenance,
image, facilities, internal finishes and
tenant mix, and high-level computerised
M&E.
Secondary – complexes that provide
average/basic retail space.
New Supply
Refers to the supply of new properties
confirmed, i.e., projects with planning
approval and there are definite plans to
proceed with the development or under
construction at the time of reporting. The
year for new supply refers to the year in
which the projects/units are expected to
receive Certificate of Fitness for
occupation.
Absorption
Refers to the total number of net take up
of accommodation or units in new
projects being leased or sold. Resale of
units is excluded.
Rents
Average gross rents are computed
based on a basket of properties,
inclusive of service charges. Office –
typical net floor size adopted are
between 2,000 sq ft and 5,000 sq ft.
Retail - only rents of prime speciality
retail shops, e.g. those with good
frontage or pedestrian footage, are
included in the publication.
Market Prices
Market prices are reported on per sq ft
(psf) basis on net floor areas. The office
and retail market are reflective of en bloc
sales evidence (referring to the sale of
entire land and building
Below is a list of publications produced by DTZ Research which may be accessed at www.dtz.com/research
Global Occupancy Costs : Offices Analysis of Transactions of Private
Residential Properties, Singapore City Profile - Vietnam Property Times, Bangkok Money into Property City Profile – Bangkok Office Market Brief, Bangkok Property Times, Indonesia Obligations of Occupation (Europe,
EMEA, Asia Pacific) City Profile - Jakarta Office Market Brief, Jakarta
Property Times, Klang Valley & Environs
Asia Pacific Office Market Brief City Profile - Kuala Lumpur Office Market Brief, Kuala
Lumpur Property Times, Singapore Asia Pacific Property Investment
Explanatory Notes
For more information, please contact:
DTZ Nawawi Tie Leung Property
Consultants Sdn Bhd
Suite 32.03, Level 32,
Menara Citibank,
165, Jalan Ampang
50450 Kuala Lumpur, Malaysia
Tel: +603 2161 7228
Fax: +603 2161 1633
www.dtz.com/my
Brian Koh
Executive Director,
Research and Consulting
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Disclaimer and confidentiality clause
This report should not be relied upon as a basis for transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ.
© DTZ Nawawi Tie Leung Property Consultants Sdn Bhd July 2009. No part of this report may be
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