The industrial sector is still the bright spot this year

While the general lackluster trend in the real estate market last year should persist, the industrial sector should remain a bright spot, according to CBRE | WTW's Real Estate Market Outlook 2019 for Malaysia. The report was released in Kuala Lumpur on January 16th.

The first 20 transactions of the last year were dominated by the industrial sector, notes CBRE | The WTW CEO, Foo Gee Jen. "The industrial sector is the treasure of the [downturn] market. Large portions of land are opened with better access via motorways such as the West Coast Expressway. Even before the freeway was completed, there were announcements of around 300 acres at Kota Seri Langat, in Malaysia Vision Valley and elsewhere. This is a really exciting time. "

Contrary to conventional ad hoc projects, industrial developments today are planned in a similar way to supervised and supervised residential schemes. "It's cleaner, more ecological and safer," says Foo.

Investing in industrial real estate is usually for larger players as the amount involved is more than RM5 million. The rent yield is between 7% and 10%, says Foo.

Overall, the real estate market for 2019 will remain challenging in all sectors. "While the demand for landed property is still supported by population growth, areas of interest are high-growth residential units with low employment," he says.

"Accessibility continues to be a challenge for the residential sector and buying sentiment is weak, as people are more cautious when it comes to large items.

"The trend of common space like that of the IGB Group is something interesting to examine".

Things will continue to remain challenging in the retail sector. "Tenants are becoming restless and we are seeing a trend in monthly leasing." The different terms of rent depend very much on the rent of turnover rather than on fixed overheads, "says Foo. However, the five best shopping centers – Pavilion, Suria KLCC, Mid Valley, 1 Utama and Sunway Pyramid – continued to perform well last year, supported by three-month tax holidays.

For the office sector, movements from old buildings to new purpose built premises were seen last year. To complete the sector, co-working spaces have also increased.

Another bright spot is the Sabah tourism market with the Pan Borneo highway which is the main catalyst. "The places on the tip of Borneo in Sabah are equal, if not better, than the most popular tourist places like Bali.With the opening of the Pan Borneo Highway, we firmly believe that the tourism market will move to another level" says Foo, adding that there are not enough world-class resort hotels in Sabah.

"We should not sell Malaysia as a low-budget tourist market.Our hotel rates should match those of Phuket or Bali.We have to attract tourists of high economic value to Malaysia.We can not always depend on the adventurers."

He adds that a new airport in Penang and the upgrading of Kota Kinabalu airport will increase the hotel and tourism sector.

Iskandar Malaysia

The industrial sector in Iskandar Malaysia seems relatively healthy this year, says CBRE WTW director Johor Baru, Tan Ka Leong, in his presentation of market perspective for the southern state. Due to the new limited supply of industrial properties, it foresees the demand for industrial complexes built for sale and medium-sized independent factories in managed industrial parks. The volume of industrial property transactions grew 10% last year.

As for the hospitality industry, this year will see 2,250 new rooms from six hotels. "We believe that an increase in tourism activities and catalytic developments in Iskandar Malaysia will ensure that the sector works well this year," he says.

The state real estate market is expected to see its high-rise residential properties above 50% for the first time. "We believe that prices and rents will decrease, and it is certainly a market for buyers and tenants with many choices – old and new properties – in privileged positions at attractive prices and rentals," says Tan.

The multi-storey residential sector will see an additional 10,500 units this year or 10% of the current offer of 102,851 units. In 2017 and 2018, 40,000 tall units were added to the market. The prices of these units remained stable at RM400 psf last year due to too many transactions. "Of the 950 multi-story residential operations last year, only 17, or less than 2%, were rated above RM600 psf," says Tan.

Residential landholdings are expected to see stable prices but slightly lower rents this year. This year there will be an additional 6,500 residential land ownership, or 2% of the existing supply of 326.444. Last year, the residential land sector saw 7,000 new units and a 20% drop in transaction volume. However, prices remained stable at RM330 psf.

According to Tan, the demand is mainly for houses at the price of RM450 at RM650 psf, which can still be found in fairly good locations in Johor Baru.

For the office sector, he says that there is a shift to new purpose-built offices. He cites the example of the professional firms EY and KPMG who move to the new headquarters of Medini. The vacancy rate is expected to increase more than 35% from the current 26%. Two office towers should be completed this year, contributing to 928,450 square feet or 16% of the existing office space of 5.84 million square feet.

As far as the retail sector is concerned, Tan believes that the entry of new shopping centers will create a rigid competition and the old shopping centers will see higher vacancies, lower yields and even closure. The vacancy rate is expected to rise to 30% from the current 25%. This year there will be six new shopping centers, with a contribution of 3.7 million square feet to the state retail sector.

Penang

CBRE | WTW Penang director Peh Seng Yee predicts that the Penang industrial sector is doing well, supported by new investments, continued reinvestments and the expansion of the Batu Kawan industrial park.

Other bright spots in the state are the residential and hotel sectors. Peh notes that these are interesting areas to look into, in particular housing schemes in good locations or nearby infrastructure, as well as boutique hotels and resorts.

In addition to the proposed new Penang airport, which will also benefit the hotel industry, the main catalysts that can stimulate the real estate market will be the Penang Transport Master Plan plan and land reclamation projects.

This year, skyscrapers in Penang should see a correction in prices in the secondary market and cheaper units on offer. "The high number of leaps in the residential high-rise segment provides good opportunities for buyers," says Peh.

Of the residential ledge of 3,261 units in Penang, 68% or 2,200 units are condominiums and apartments. Of these, 37% or 1,190 units are priced between RM500,001 and RM1 million and 25% or 823 units, above RM1 million.

As for the office sector, Peh expects the sector built specifically to adjust its gross rents towards the up and future developments to be located away from the central business district.

In the retail sector, he believes that shopping malls will continue to face the challenges of online shopping platforms.

The Klang valley

In presenting the market prospects for the Klang Valley, CBRE | Kuala Lumpur's WTW director Ungku Mohd Iskandar says he expects limited growth in all sectors, with the exception of the industrial sector.

"The e-commerce will increase the demand for industrial properties located near ports, airports and the city center, which improve the delivery of the last mile technology and innovation have also pushed the industrial sector towards more modern and cleaner premises We anticipate good opportunities in the industrial sector, "he says.

The industrial sector in the Klang Valley should improve this year. "The data from Bank Negara Malaysia show that our foreign direct investment is around 30 billion RM / RM 40 billion a year with the manufacturing sector occupying almost 97% of the industrial space in the Klang Valley. Industry 4.0 we are waiting for a question [for industrial properties] to stay on the upward trend, "says Ungku Mohd Iskandar.

He adds that infrastructure development continues to be a catalyst, with new growth areas expected to rise along the West Coast Expressway and the LRT3 and MRT2 lines.

As for the industrial sector, he believes that the focus will be on the western region: Westport, the expansion of the free zone of Pulau Indah, The Compass @ Kota Seri Langat, the Free Trade Zone digital park of KLIA Aeropolis , the Subang aerospace and aerospace hub – as well as UMW High Value Manufacturing Park @ Serendah in the north.

Industrial properties in some densely populated and mature areas such as Bandar Sunway and Petaling Jaya are also being renovated for full commercial use.

Ungku Mohd Iskandar notes that the high-end luxury residential segment will remain challenging this year, as the premises are being assessed and the oil and gas industry crisis has weakened demand from expatriate shoppers. "Demand for affordable housing is strong and government initiatives will further increase demand, but access to finance is still a problem."

In the office sector, he says it will be challenging this year. "The market was stable last year but the outlook for this year is not favorable."

There will be a significant increase in supply until 2021 with some new office buildings with a net area of ​​over one million square feet each. This is on top of the existing 109.7 million square feet of office space in the Klang Valley.

"We anticipate continued pressure on renting and occupying existing buildings," says Ungku Mohd Iskandar. Rents for specially constructed new offices have decreased significantly in recent years, going from RM8 to RM6 and RM7 psf. "Some offices also offer three to six months without rent".

In the retail sector, he says that new shopping centers, less strategic shopping centers and neighborhood shopping centers will have to face challenges. "We are witnessing a new trend in the monthly lease and rental of the turnover, which raises the question of sustainability for these premises," says Ungku Mohd Iskandar.

Four new shopping centers were completed last year. By 2020, a further 20% of existing supply or 11 million square meters will enter the retail market. This will come, among others, from Tropicana Garden Mall, TRX Lifestyle Quarter and Pavilion Bukit Jalil.

As for the hospitality industry, the situation will remain stable as other luxury hotels, including Kempinski Hotel and Fairmont Kuala Lumpur, will enter the market in 2020. "We believe that the occupancy rate and room rate will remain stable at 74% and respectively at RM270 ", Dice Ungku Mohd Iskandar, attributing this to an increase in the tributaries of tourists and domestic tourism that gain momentum.

Kota Kinabalu

In Sabah, tourism and government allocation will continue to increase the real estate market this year. "The Pan Borneo Highway will open new areas and offer perspectives to hotel resorts outside Kota Kinabalu," says Cornelius Koh, director of WTW Sabah.

The number of visitors arrivals has increased by 4% in the last 10 years, he says. "We believe that there is the possibility of more luxury resort hotels because the existing ones have enjoyed the 80% occupancy.In addition, in the last 18 years we have had about 2,400 luxury hotel rooms."

The offer of rooms arriving at Kota Kinabalu will include those of the branded business hotels such as Crowne Plaza, Holiday Inn Express, Citadines, Pullman and Hotel Jen of Shangri-La – which will contribute with 1,579 rooms – and the hotel Alila Dalit Bay brand resort, which will add 152 new rooms and 74 villas.

As for the residential sector, Koh expects a stimulating condominium market due to a substantial incoming supply of 1,200 units this year and another 2,400 units next year. Kota Kinabalu currently has about 10,000 condominiums. There have been new land tenure offers limited over the years and prices have been maintained.

The retail sector in Kota Kinabalu should be challenging for newly built shopping centers with fragmented properties. "We do not expect that employment in the laminated shopping centers will be improved or recovered quickly," says Koh. "However, well-positioned and well-managed shopping centers that are totally or substantially controlled by developers are seeing better employment".

Kuching

In Kuching, all the real estate sectors are expected to remain stable, except for the high-growth residential segment, which will see a substantial increase in the stock of 20% to 24,653 from 20,546 last year, says the administrator WTW delegate Sarawak Robert Ting Kang Sung.

The residential segment of skyscrapers reported a year-on-year decline of 50% of launches last year, while the stock is expected to double this year, putting pressure on sales, rents and employment. Meanwhile, the residential land segment remained stable last year with the lack of new launches in the main areas.

For the retail sector, demand for prices and rents is stagnant at RM700 psf for the upper floors and RM2,000 psf for the prime units. The office sector is also expected to see a lackluster return this year.

"We expect the real estate market to remain unchanged and investor sentiment will be cautious.The buyer and tenant market will continue to consolidate and moderate, but we are still expecting sales, but on a moderate scale," says Ting.

He observes that Sarawak has a wide land and a low population but a lack of connectivity because of its vastness. "The Pan Borneo Highway, which extends from Kuching to Miri, will be the key catalyst, and when the first phase is operational in 2021, we expect many more areas to open.

"Another catalyst is the assignment of the state of RM11.9 billion for infrastructure, rural socio-economic transformation and digital initiative".