REAL ESTATE HIGHLIGHTS - RESEARCH 1St HALF 2016 - Knight Frank

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REAL ESTATE HIGHLIGHTS - RESEARCH 1St HALF 2016 - Knight Frank
RESEARCH

REAL ESTATE
HIGHLIGHTS
1st HALF 2016

kuala lumpur    penang   johor bahru   KOTA KINABALU
REAL ESTATE HIGHLIGHTS - RESEARCH 1St HALF 2016 - Knight Frank
HIGHLIGHTS                             KUALA LUMPUR HIGH END
    The residential market continues to
                                           CONDOMINIUM MARKET
    remain lacklustre with lower volume
    and value of transactions recorded.    ECONOMIC AND
                                           MARKET INDICATORS
    Limited project completions and new    Malaysia’s economy expanded at a
    launches of high end condominiums /    slower pace in 2015 with Gross Domestic
    residences during the review period.   Product (GDP) growing at an annual
                                           rate of 5.0% (2014: 6.0%). For 2016, the
                                           Government has trimmed the country’s
    Growing pressure on rentals amid       GDP growth forecast to 4 - 4.5% due to
    strong supply pipeline (existing and   the volatility in crude oil prices and other
    new completions) and a challenging     economic challenges. GDP continued
    rental market while prices in          to moderate in the first quarter of 2016,
    the secondary market generally         posting 4.2% growth, its slowest since
    continue to remain resilient.          3Q2009 (4Q2015: 4.5%), driven by
                                           domestic demand. Private consumption
                                           expanded by 5.3% while private
    Developers adopt innovative ‘push      investment moderated to 2.2%.
    marketing’ strategies to boost
                                           Headline inflation for April 2016 registered at
    sales of selected projects and         2.1%. It is expected to be lower at 2% to 3%
    improve revenue.                       this year, compared to an earlier projection       Aria
                                           of 2.5% to 3.5% and will continue to remain
                                           stable in 2017.
                                                                                             (432 units) and The Residences at The
                                           Meanwhile, labour market conditions               St. Regis Kuala Lumpur (160 units).
                                           continued to weaken with more
                                           retrenchment of workers, particularly in          By the second half of 2016, the scheduled
                                           the manufacturing, mining and services            completions of another five projects will
                                           sectors. Unemployment rate rose to 3.4%           contribute some 1,138 units to the existing
                                           in February 2016 (2015: 3.1%).                    stock. These projects are KL Trillion, Le
                                                                                             Nouvel, Seti Sky Residences (Divina Tower),
                                           Despite moderating growth in household
                                                                                             Three28 Tun Razak and One Kiara (Tower A).
                                           debt, Malaysia’s household debt-to-gross
                                           domestic product (GDP) ratio remained             Despite cautious sentiment in the high end
                                           elevated at 89.1% in 2015 (2014: 86.8%).          residential segment, there were several
                                                                                             notable previews and launches during the
                                           The volume of residential loan
                                                                                             review period.
                                           applications was 10.0% lower in 2015
                                           when compared to 2014 while the                   YOO8 (Tower A), a branded residence
                                           amount of loan approved declined by               within the integrated project of 8 Conlay
                                           14.6%, reflecting lower ratio of approvals        was launched in November last year.
                                           / applications at 50.2% (2014: 52.9%)             Tower A offers a total of 564 units with an
                                           (source: Bank Negara Malaysia).                   average price of RM2,700 per sq ft while
                                                                                             the upcoming Tower B is is slated for
                                           During the period under review, BNM
                                                                                             launch by 2Q2017.
                                           continued to maintain the Overnight
                                           Policy Rate (OPR) at 3.25% to remain              Launched in March 2016, 8 Kia Peng,
                                           accommodative and supportive of current           the project touted as the “King of the
                                           economic activity.                                Hill”, comprises 315 units of serviced
                                                                                             apartments and 127 units of SoHo
                                           SUPPLY & DEMAND                                   suites. The serviced apartments which
                                           The completion of 1,033 units of high-end         are priced from RM2,300 per sq ft has to
                                           condominiums / residences from three              date, achieved circa 20% take-up rate.
                                           projects during the review period brought         In KL City Fringe, Novum South Bangsar,
                                           the cumulative supply in Kuala Lumpur             launched in March 2016, features three
                                           to 43,782 units. The projects are Pavilion        towers housing 654 units of serviced
                                           Banyan Tree Signatures (441 units),               apartments. The units are priced at
                                           Vortex Suites & Residences @ KLCC                 RM880 per sq ft on average.

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REAL ESTATE HIGHLIGHTS - RESEARCH 1St HALF 2016 - Knight Frank
real estate highlights                                malaysia

TABLE 1                                                                                               Prices & Rentals
Completion of High End Condominiums / Residences in 1H2016
                                                                                                      During the review period, asking
                                                                           The Residences at          prices continued to remain resilient in
                       Pavilion Banyan           Vortex Suite &
                                               Residences @ KLCC             The St Regis             most locations.
                       Tree Signatures                                       Kuala Lumpur
                                                                                                      Since last year, the rental market,
                                                                                                      particular in KL City, has been under
                                                                                                      pressure following job cuts due to
                                                                                                      the slump in crude oil prices and
                                                                                                      a slowdown in the economy. With
                                                                                                      heightened competition in a tenant-
Source: Knight Frank Research                     *Pending Certificate of Completion and Compliance   led market, there are owners willing to
                                                                                                      compromise on lower rentals to secure
                                                                                                      and retain tenants.
Located in Mont’ Kiara, Sunway Mont               upcoming luxury residential project of Aria,
Residences, launched on May 28 carries a          located along Jalan Tun Razak, offers 598           In the primary market, selling prices
gross development value (GDV) of RM250            units in two blocks. The project features           of high end condominiums / serviced
million. The 38-storey tower block will           a generous spread of facilities and leisure         apartments in KL City range from
house 288 units (typical and dual-key).           spaces covering 65,000 sq ft of area on             RM1,300 to RM1,900 per sq ft while
Priced from RM880,000 onwards, the                four different floors. Aria will provide full-      branded residences are generally priced
project has reportedly achieved circa 80%         fledged 24-hour concierge service for all           from RM2,000 per sq ft onwards. In
sales.                                            residents as well as housekeeping, leasing          KL Fringe such as Mont’ Kiara, new
                                                  and sub-sale services. The units are sized          launches of condominiums / serviced
In KL City, some notable projects were
                                                  from 630 sq ft to 1,502 sq ft.                      apartments are priced from about
unveiled recently, inviting potential
purchasers to register their interest. The        Also on the watch list are mega projects            RM800 to RM1,200 per sq ft.
projects are Latitud 8, a joint venture (JV)      with residential components, namely
                                                                                                      Prices in the secondary market continued
between Crest Builder Holdings Bhd,               the 19.4-acre Bukit Bintang City Centre
                                                                                                      to remain resilient. During the second
Prasarana Malaysia Bhd and Detik Utuh;            (BBCC) development and Pavilion
                                                                                                      half of 2015, small to mid-sized units
and Aria by Hap Seng Land.                        Damansara Heights on a 15.8-acre site.
                                                                                                      (about 600 sq ft to 1,300 sq ft) in selected
Latitud 8 is a transit oriented development       Meanwhile, the cooling measures                     schemes such as ViPod Residences, The
(TOD) sitting above the existing Dang             previously introduced by BNM to curb                Horizon and The Troika were transacted
Wangi LRT station. The 43-storey single           excessive speculation in the property               at circa RM1,300 to RM1,800 per sq ft.
block mixed commercial development,               market have met its objectives. In                  Meanwhile, larger units (1,600 sq ft to
with a GDV of RM1.1 billion, will feature         Kuala Lumpur, the volume and value of               2,600 sq ft) in selected projects such
a lifestyle retail (800,000 sq ft NLA),           residential property transactions declined          as The Troika, Pavilion Residences and
business facilities, office space and 402         by 8.3% and 11.4% respectively in 2015              Quadro Residences, command prices
residential units including SoFo, SoHo and        when compared to 2014. Growth in the
                                                                                                      from RM1,100 to RM1,600 per sq ft.
                                                  Malaysian House Price Index was also
duplexes.
                                                  muted at 5.8% in 4Q2015, the lowest
Slated for launch by 3Q2016, the                  since 1Q2010 (5.7%).

FIGURE 1
Projection of Cumulative Supply for High End Condominiums / Residences 2010 - 2016 (f)

Source: Knight Frank Research

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REAL ESTATE HIGHLIGHTS - RESEARCH 1St HALF 2016 - Knight Frank
OUTLOOK
The market outlook for the high end                        entry level for foreigners.                                creative “Just Bid It” campaign; and SP
condominium segment remains lacklustre,                                                                               Setia’s 10:90 scheme.
                                                           The challenging property market
impacted by weak sentiment as potential
                                                           environment has led to greater level of                    While the impending completion of the
buyers and investors continue to adopt a                   marketing strategies with developers                       LRT extension line and Phase 1 of the on-
‘wait and see’ approach.                                   adopting “push marketing” to boost                         going Sungai Buloh-Kajang MRT line by
With widening gap between supply and                       sales of selected projects and improve                     end of 2016 will continue to promote more
demand as well as mismatch in product                      revenue. Notable offers and marketing                      transit oriented developments (TODs)
pricing and affordability in the domestic                  programmes include Sunway Group’s                          along the transportation routes, more
market, more developers are widening                       “Sunway Property Certainty Campaign”                       developers are also looking to expand
                                                           offers up to 88% financing; IOI
their target catchment by marketing                                                                                   their land banks into the suburbs to offer a
                                                           Properties’ deferred payment scheme
overseas as the weak local currency                                                                                   wider mix of affordable housing products
                                                           over 18 to 24 months for the lump sum
translates to attractive pricing and low                                                                              that cater to the domestic market.
                                                           downpayment; Tropicana Corp Bhd’s

TABLE 2
Average Asking Prices and Rentals of Existing High End Condominiums

*     Excludes Binjai on the Park but includes Pavilion Residences   *** Includes Twins @ Damansara Heights
**    Excludes Desa U-Thant and Seri Hening                          **** Excludes Verve Suites which comprise mainly fully furnished small units
Source: Knight Frank Research

TABLE 3
Notable Launches of High-End Condominiums / Residences

     Scheme                 YOO8 of 8 Conlay                     8 Kia Peng                        Novum South Bangsar               Sunway Mont Residences

     Description            Branded residences                   Serviced Apartments               Serviced Apartment                Condominium
                            serviced by Kempinski                and SoHos

     Launch Date            Tower A: Nov 2015                    Mar 2016                          Mar 2016                          May 2016
                            Tower B: 2Q 2017 (Target)

     Developer              KSK Land Sdn Bhd                     I-Bhd                             Eupe Corp Bhd                     Sunway Berhad

     Area                   Jln Conlay (KL City)                 Jln Changkat Kia Peng             Jln Persekutuan                   Jln Kiara 5 (Mont Kiara)
                                                                 (KL City)                         (Bangsar South)

     Target Completion Dec 2020                                  Sep 2019                          Nov 2019                          Q2 2020

     No. of Units           Tower A: 564 units                   Serviced Apt: 315 units           Serviced Apt (Towers              288 units (including 90
                            Tower B: 468 units                   SoHos: 127 units                  A, B & C): 654 units              dual-key units)

     Unit Sizing            Tower A: 700 - 1,308 sq ft           718 - 1,738 sq ft                 647 - 1,441 sq ft                 Typical: 1,122 - 1,609 sq ft
                                                                                                                                     Dual-Key: 1,695 - 1,906 sq ft

     Pricing                Average of RM2,700 psf               From RM2,300 psf                  Average RM880 psf                 RM787 psf (after discount)

Source: Knight Frank Research

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REAL ESTATE HIGHLIGHTS - RESEARCH 1St HALF 2016 - Knight Frank
real estate highlights                          malaysia

HIGHLIGHTS                                 KUALA lUMPUR &
                                           Beyond Kuala lumpur
                                           (Selangor) OFFICE Markets
More multinational companies
(MNCs) from marine & offshore
sectors may be enticed to relocate to
Kuala Lumpur in view of the attractive
currency and competitive rental            Market Indications
rates, translating to lower operational
                                           Amid looming supply and a challenging
costs as well as to be near their          business operating environment, the
clienteles amongst other reasons.          office markets in Kuala Lumpur and
                                           Beyond Kuala Lumpur (Selangor)
The investment market continued to         continued to see subdued leasing
remain active during the review period.    activity in 1H2016.

                                           The tenant-led market saw marginal
The rental and occupancy levels are        contraction in achieved rentals although
expected to record marginal declines       occupancy levels continued to hold
in the coming quarters amid weaker         steady during the review period.
demand / lower absorption and              Supply & Demand
strong supply pipeline.
                                           The cumulative supply of purpose built
                                           office space in KL and Beyond KL
                                           (Selangor) stood at circa 92.7 million sq ft
                                           as of 1H2016.
                                                                                           Office - Mercu Mustapha Kamal (Tower 2)
                                           The completion of some 0.18 million sq ft
                                           of space in Beyond KL (Selangor) brought
                                           its cumulative supply to 17.9 million sq ft    Fringe, the overall occupancies in
                                           while in KL City and KL City Fringe, with      both regions remained flat at 82.8%
                                           no completion, the cumulative supply           (2H2015: 82.5%) and 90.1% (2H2015:
                                           remained unchanged at 51.0 million sq ft       89.3%) respectively. It is noted that
                                           and 23.8 million sq ft respectively.           much of these leasing activities relates
                                                                                          to existing tenant movements, for
                                           Tower 2 of Mercu Mustapha Kamal                upgrading or rent advantage, rather
                                           development, comprising 14 levels              than for expansionary purposes.
                                           of purpose-built office space with
                                           approximately 179,844 sq ft NLA, was           Also, while there are tenants in the Oil and
                                           completed during the review period.            Gas (O&G) industry that are sub-letting part
                                           Located in Neo Damansara, Damansara            of their office space to reduce operational
                                           Perdana, the dual compliant project (GBI       costs amid the challenging business
                                           Gold certified and MSC status) features        environment, this has not translated into a
                                           two office towers atop a podium with 2         decline in the overall occupancy rate due to
                                           levels of banquet hall, 5 levels of elevated   their contractual obligations.
                                           car park and 4 levels of basement car          Beyond KL (Selangor), however,
                                           park. Tower 1 with 26 levels of office         chalked up marginal improvement in its
                                           space (about 275,642 sq ft NLA) is             occupancy, recording at 79.5% (2H2015:
                                           scheduled for completion next year.            77.3%) with Block 3420 (former Ericsson
                                           By the second half of the year, some 5.8       Building) in Cyberjaya fully taken up by
                                           million sq ft of space is expected on-         FTMS Global College (134,000 sq ft NLA)
                                           stream from buildings that include Public      and improved occupancies in several
                                           Mutual Tower and JKG Tower in KL City;         other buildings.
                                           Menara Ken @ TTDI and Menara Hong              There were several notable office related
                                           Leong (Office Tower A – Damansara City)        announcements in 1H2016.
                                           in KL Fringe; and Iconic Tower - Block N
                                           and Signature Tower - Block H at Empire        Designed by Australian firm, Fender
                                           City in Beyond KL (Selangor).                  Katsalidis Architects, the planned
                                                                                          118-storey skyscraper dubbed ‘Merdeka
                                           Despite several notable occupier               PNB118’, forms the first phase of the
                                           movements in KL City and KL City               Warisan Merdeka project that will also

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REAL ESTATE HIGHLIGHTS - RESEARCH 1St HALF 2016 - Knight Frank
TABLE 4
Office Investment Sales 1H2016

                                                                   Block P of Garden
      Building Name                 Dijaya Plaza (1)                                                      Menara Shell (4)
                                                                 Office @ Encorp Strand (2)

      Location                     Jalan Tun Razak                    Kota Damansara                 Jalan Tun Sambanthan

      Approx.
      Lettable Area                     156,488                             47,977                            557,053
      (sq ft)

      Consideration
                                          895                                628 (3)                            1,149
      (RM) / (RM psf)

(1)        Tropicana Plaza Sdn Bhd (formerly known as Dijaya Plaza Sdn Bhd) has proposed to sell a piece of freehold land together with a 19-storey office building known as
           Dijaya Plaza with 2 levels of car park containing 322 parking bays and all equipment, fittings within the building to Kenanga Investment Bank Bhd.

(2)        Encorp Bhd has sold a block (Block P) of office suites within Garden Office @ Encorp Strand in Kota Damansara, Selangor, to Koperasi Permodalan Felda
           Malaysia Bhd for RM27 million in cash plus goods and services tax (GST). The two-year-old building comprising 20 office suites is of 99-year leasehold
           tenure.

(3)        The price consideration is based on total lettable space of 43,002 sq ft (exclude the accessory parcel of 4,675 sq ft).

(4)        Pursuant to the Heads of Agreement (HOA) in December 2015, the Vendor (348 Sentral Sdn Bhd) had on June 30, 2016, entered into a conditional Sale
           and Purchase Agreement with Maybank Trustees Berhad (Trustee for MRCB-Quill REIT) for the proposed disposal. The property comprises one block of
           33-storey office building erected on a 5-storey podium and a 4-storey basement car park.

Source: Knight Frank Research

feature a seven-storey shopping mall.                     information and technology, oil and gas                       (includes F&B outlets) that will be
Standing at 630 metres, the iconic tower,                 sectors among its tenants.                                    retained by the group – to cater for the
anticipated to be the fifth tallest building                                                                            needs of the working population as well
                                                          Eco World Development Group Bhd
in the world when completed by 2020,                                                                                    as the residents in the future.
                                                          (EcoWorld) plans to unveil the maiden
will outstrip the 88-floor Petronas Twin
                                                          launch of its Bukit Bintang City Centre                       Uda Legasi Sdn Bhd’s upcoming mixed
Towers as the country’s tallest building.
                                                          (BBCC) mixed development by 2Q2016.                           use project, Legasi Kampong Bharu, will
The project comprises 82 levels of
                                                          The group has received positive response                      feature a 29-storey office tower with 83
office space (60 floors to be anchored
                                                          from buyers of The Stride, a 45-storey                        office suites. Located along Jalan Raja
by Permodalan Nasional Berhad (PNB)
                                                          block with strata offices targeted at small                   Muda Musa and adjacent to the Putra
with remaining 22 floors to be leased to
                                                          and medium enterprises.                                       LRT Kg Bharu Station, Menara Legasi
local and international firms), 18 floors of
mechanical and electrical facilities that                 Naza TTDI is collaborating with Keystone                      is targeted for launch this June with
will accommodate an observation deck                      Impetus Sdn Bhd to develop two                                completion expected by 2019.
and a sky lobby, and another 18 floors to                 blocks of stratified office buildings on                      Mah Sing Group Bhd’s office building
house a 236-room six-star luxury hotel.                   a 2.47-acre site in KL Metropolis, with                       in the integrated Icon City development
                                                          completion slated by 2021. The 75.5-acre                      is open for lease. Located at the
Mulia Property Development Sdn Bhd,
                                                          mixed use development of KL Metropolis,
which is part of Indonesia’s commercial                                                                                 intersection of the Federal Highway and
                                                          located off Jalan Duta, will house the
property developer Mulia Group, will be                                                                                 the LDP, MSC Tower (pending official
                                                          country’s largest exhibition space,
building its Signature Tower in Tun Razak                                                                               approval) is a nine-storey office building,
                                                          the Malaysia International Trade and
Exchange (TRX), the 70-acre site that is                                                                                LEED and Green Building Index (GBI)
                                                          Exhibition Centre (MITEC).
being primed as Malaysia’s financial and                                                                                certified and in compliant with the MSC
banking district. The 92-storey Signature                 IJM Land Bhd will be unveiling its first                      Malaysia Cybercentre status (stage 1).
Tower, with a GDV in excess of RM3.5                      commercial development in Pantai                              The building, with a GFA of 48,833 sq ft,
billion, will be among the top 15 tallest                 Sentral Park in Bukit Kerinchi, Kuala                         offers approximately 3,662 sq ft of nett
buildings in the world when completed                     Lumpur, which carries a GDV of about                          floor area (NFA) on each level.
by 2018. With gross and net lettable area                 RM500 million by the end of this year.
of 4 million sq ft and 2.65 million sq ft                 It will comprise a 30-storey office and
                                                          a 36-storey serviced apartment. The
                                                                                                                        Prices and Rentals
respectively, the tower offers column-free
floors with typical floor plate averaging                 office tower, to be erected on parcel                         During the review period, the overall average
34,000 sq ft, the largest configuration of                13 of Pantai Sentral Park, will also be                       achieved rental rates in both KL City and KL
column-free floor space in the city. The                  IJM’s future corporate office. IJM Tower                      Fringe dipped marginally to RM6.13 per sq
group is eyeing banking and finance,                      will also comprise retail components                          ft and RM5.72 per sq ft respectively.

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REAL ESTATE HIGHLIGHTS - RESEARCH 1St HALF 2016 - Knight Frank
real estate highlights                       malaysia

Similarly, the overall average achieved         TABLE 5
rental rate Beyond KL (Selangor)                Selected Grade A Office Asking Rentals
declined marginally to RM4.16 per sq ft.

Despite further completions and weaker
business sentiment, rentals of Grade
A offices in Kuala Lumpur continue to
hold, ranging from RM7.00 to RM13.00
per sq ft per month.

Notable occupier movements during the
review period include the following:

McDermott Asia Pacific, one of the
leading engineering, procurement,
construction and installation services, has
relocated its regional office to Menara
Hap Seng 2 in Kuala Lumpur.

Infoblox has opened its first Asian
research and development facility
(Uptown 1, Damansara Uptown) to help
address global DNS (Domain Name
System) threats.

Milliman, Inc., a premier global consulting
and actuarial firm, has opened an office
in Kuala Lumpur (1 Sentral, KL Sentral).
The Kuala Lumpur office, its 12th in the
Asia-Pacific region, will offer employee
benefits, life, non-life, and health
insurance consulting services.

CE+T Power Group, one of the leading
manufacturers of modular power inverters
for European and the US market, has
opened its central APAC office in Kuala
Lumpur (Plaza Sentral).

Hytera Communications, a world leading
solution provider of professional mobile
radio, unveiled its Malaysia office in Kuala
Lumpur. The newly open office is located
at Tower A of Vertical Business Suites in
Bangsar South.

Other notable office-related investment
                                                Source: Knight Frank Research
announcements during the review period
include the following:                          Tropicana Corp Bhd expects the disposal     in cash plus goods and services tax
TSR Capital Bhd has proposed to                 of Dijaya Plaza in Jalan Tun Razak to       (GST). The two-year-old building
acquire a private company that owns             Kenanga Investment Bank Bhd for             comprising 20 office suites is of 99-year
a parcel of freehold land (circa 5,000          RM140 million cash to be completed          leasehold tenure.
sq m) with development approval for             by the second quarter of the year. The
two blocks of office towers (19-storey          asset comprises a parcel of freehold land
                                                                                            Outlook
and 11-storey) and a 4-storey car park.         measuring approximately 3,674 sq m,         Moving forward, the office markets in
The project which has a preliminary             together with an en-bloc 19-storey office   KL Fringe and Beyond KL (Selangor) are
estimated GDV of RM230 million is               tower with two levels of basement car       expected to remain subdued while in KL
located adjacent to Menara TSR in               park (322 bays).                            City, the office market is anticipated to
Mutiara Damansara. TSR intends to                                                           face downward pressure in the view of
partially sell / or lease the buildings to      Encorp Bhd has sold a block of office
                                                                                            persistent low oil prices.
be developed on the land, where 70% of          suites (Block P) within Garden Office
the lettable space is targeted to be sold       @ Encorp Strand in Kota Damansara,          Amid widening mismatch between
and the remaining may be kept for rental        Selangor, to Koperasi Permodalan            supply and demand, office vacancies
income and capital appreciation.                Felda Malaysia Bhd for RM27 million         are expected to trend upwards due to

                                                                                                                                        7
REAL ESTATE HIGHLIGHTS - RESEARCH 1St HALF 2016 - Knight Frank
a strong supply pipeline and lacklustre       rates due to sustained demand and limited   quality of Living Survey).
absorption as more firms cut workforce        supply of good grade space.
                                                                                          The on-going Klang Valley Mass Rapid
/ freeze hiring / consolidate business
                                              Moving forward, more multinational          Transit (KVMRT) project, namely the
operations.
                                              companies (MNCs) from Marine and            51km Sungai Buloh-Kajang Line, which
Owners / landlords of newly completed         Offshore (M&O) sector may see Kuala         remains on track for full completion by
office buildings which have not been          Lumpur as an attractive proposition.        2017 is expected to benefit decentralised
pre-let / have yet to achieve significant     Besides offering the lowest prime office    office locations along its route.
occupancies may offer more competitive        rental amongst regional cities, MNCs
                                                                                          Meanwhile, the Ministry of Territories
rental package to secure tenants while        relocating their regional offices here
                                                                                          has recently announced the tightening
those of older / dated and secondary office   stands to benefit from lower operational
                                                                                          of approval for the construction of new
buildings are expected to be more flexible    costs (attractive local currency - lower
                                                                                          office buildings in Kuala Lumpur, with
in negotiations to retain existing tenants.   office rentals, cheaper accommodation
                                                                                          the exception of corporate buildings
                                              and staff costs, etc.)
Well-located good grade, dual-compliant                                                   constructed for businesses’ own use
office space, however, is expected to         Kuala Lumpur, ranked after Singapore in     to control the escalating supply and
remain resilient, maintaining healthy         South-East Asia, also offers good quality   stabilise the office market.
occupancy levels and attractive rental        living (source: Mercer’s 18th annual

FIGURE 2
Kuala Lumpur - Occupancy and Rental Trends 1H2010 - 1H2016

Source: Knight Frank Research

8
real estate highlights                           malaysia

HIGHLIGHTS                                KLANG VALLEY RETAIL Market
Consumers continue to hold back
                                          Market Indications
on spending evident from weaker
retail sales data in 1Q2016 (-4.4%)       The MIER Consumer Sentiment Index              occupied by PIKOM ICT Mall CapSquare
against 1.3% growth in 4Q2015.            (CSI) which rebounded to 72.9 points           (previously known as CapSquare Retail
                                          in 1Q2016 from an all-time low of 63.8         Centre). The latter is part of an existing
                                          points in 4Q2015 remains below the             integrated project dubbed Jakel Square,
Projected retail sales growth for         threshold level of confidence.                 located at Jalan Munshi Abdullah in the
2016 revised downwards to 3.5%                                                           older area of KL CBD.
                                          Retail sales continued to be impacted by
from 4.0%.                                                                               Scheduled to open by August, Damansara
                                          rising cost of living amid a slowdown in the
                                          economy and weak job market, growing           City Mall (DC Mall) is positioned as a lifestyle
The recent completion of some 2.82        by a modest 1.4% in 2015 compared to a         mall, targeting the greater community of
million sq ft NLA of retail space in      3.4% expansion in 2014. With consumers         Damansara Heights and Bangsar as well as
                                          continuing to hold back on spending, retail    the KL-PJ population. Approximately 70%
Klang Valley and the scheduled
                                          sales contracted sharply (-4.4%) in 1Q2016     of the total space has been allocated to the
opening of MyTown Shopping
                                          (4Q2015: 1.3%).                                food & beverage (F&B) trade with tenants
Centre and Sunway Velocity Mall in                                                       such as Kampachi, Soleil, Charlie Chaplin,
KL city fringe by 2H2016 (total 2.1       Supply & Demand                                Awajiya Curry House, Cake Sense, I Love
million sq ft NLA), is expected to                                                       Yoo and Juiceworks. The mall forms part
                                          A total of 12 shopping malls with
further heighten competition in the                                                      of the 8.5-acre Damansara City integrated
                                          combined NLA of approximately 2.82
already crowded retail market.                                                           development which consist of luxury high-
                                          million sq ft were opened / completed
                                                                                         rise residences (DC Residency), Grade A
                                          during the review period, bringing the
                                                                                         office towers, and the five-star Sofitel Kuala
Owners of at least two suburban           cumulative supply of retail space in Klang
                                                                                         Lumpur Damansara hotel. The locality
shopping malls are reportedly             Valley to circa 53.72 million sq ft. The
                                                                                         of Damansara Heights which is currently
looking to divest their assets in this    bulk of completion (1.88 million sq ft
                                                                                         undergoing rejuvenation with notable
                                          or 67%) is located in Selangor with the
challenging operating environment.                                                       upcoming project Pavilion Damansara
                                          remaining 0.94 million sq ft (33%) from
                                                                                         Heights will see improved accessibility and
                                          new malls in Kuala Lumpur. Of the total
                                                                                         connectivity with the scheduled completion
Despite all negativity, there are         completions, eight have commenced
                                                                                         of Phase 1 of the Sungai Buloh-Kajang
opportunities in the retail market,       operations whilst the remaining four
                                                                                         Mass Rail Transit (MRT) Line by end 2016.
particularly in selected and              malls, completed with Certificate of
upcoming areas which are under            Completion and Compliance (CCC)                Located within Glomac Damansara, the
                                          issued, have yet to open for business.         six-storey GLO Damansara Mall which
served but well populated.
                                          Shopping malls that have commenced             opened in April, is anchored by upscale
                                          operations include LuLu Hypermarket &          grocery store, Ben’s Independent Grocer
                                          Department Store (250,000 sq ft), GLO          (B.I.G). Other tenants include Imara
                                          Damansara (360,000 sq ft) and M3 Mall          Mediterranean Cuisine, Life Hot Yoga, The
                                          (165,000 sq ft) in Kuala Lumpur; and           Tranquerah, Boost Juice bar, MiniPani and
                                          Sunway Pyramid Shopping Mall Phase             Soon Thye Hang.
                                          3 (63,000 sq ft), da:mén USJ Shopping
                                                                                         M3 Mall in Taman Melati, Setapak,
                                          Mall (420,000 sq ft), Aeon Mall Shah Alam
                                                                                         commenced operations in early 2016.
                                          (700,000 sq ft), Utropolis Marketplace
                                                                                         Located approximately 100m from the
                                          (120,000 sq ft) and Gallerie @ De
                                                                                         Taman Melati Light Rail Transit (LRT)
                                          Centrum (160,000 sq ft) in Selangor.
                                                                                         station and the planned Gombak Integrated
                                          Newly completed malls which have yet           Transport Terminal under a joint urban
                                          to be operational include Damansara City       redevelopment initiative between Kuala
                                          Mall (169,000 sq ft) in Kuala Lumpur; and      Lumpur City Hall (DBKL) and Gerbang
                                          The Square @ One City (120,000 sq ft), M       Mekar Sdn Bhd, the six-level mall offers
                                          Square Shopping Mall (186,000 sq ft) and       165,000 sq ft retail space with 550 parking
                                          Centrus Mall (109,000 sq ft) in Selangor.      bays and a large multi-purpose hall. Key
                                                                                         tenants include The Store Supermarket,
                                          Opened in June, LuLu Hypermarket &             Texas Chicken, Georgetown White Coffee,
                                          Department Store marks the entry of            Station Kopitiam, King’s Confectionery,
                                          the Middle Eastern retailer, LuLu Group
                                                                                         Mr. DIY, Nagoya Textile, Gintell, myNews.
                                          International, into the local retail scene.
                                                                                         com, and Oppo Smartphone.
                                          The new hypermarket-cum-department
                                          store occupies some 250,000 sq ft              Meanwhile, in Selangor, all eight newly
                                          NLA in a refurbished building formerly         opened / completed shopping malls with

                                                                                                                                       9
the exception of Aeon Mall Shah Alam,          Developed by Millennium Land Sdn Bhd,           a 45-storey block of strata offices and two
form part of integrated developments.          M Square Shopping Mall is the retail            blocks of serviced apartments (680 units).
                                               component of Millennia City, an integrated
Phase 3 of Sunway Pyramid Shopping                                                             Also in March, Permodalan Nasional
                                               project in Puchong which also comprise
Mall features a new retail podium with                                                         Berhad (PNB) revealed detailed
                                               commercial and residential properties.
circa 63,000 sq ft NLA and a 4-star hotel,                                                     building plan of Merdeka PNB118
                                               Phase 1 features the seven-storey shopping
Sunway Pyramid Hotel West. Linked                                                              mega development. The 118-storey
                                               mall and Hilton Garden Inn with Phase 2
by a pedestrian bridge, the podium is                                                          tower which will overshadow the iconic
                                               offering Millennia Residences. The mall, with
predominantly occupied by F&B outlets                                                          Petronas Twin Towers will accommodate
                                               Parkson as the anchor tenant, is slated to
with notable tenants that include The                                                          1.7 million sq ft of office space and a six-
                                               commence operation by 2H2016.
Parenthood, Sanook, Impresseoul,                                                               star luxury hotel with 236 guest rooms.
Hokkaido, Ramen and Starbucks.                 In Cyberjaya, the three-level Centrus           The development which will also feature
                                               Mall, completed in early 2016 forms             a shopping mall with circa 900,000 sq ft
Located at Persiaran Kewajipan in USJ 1,
                                               part of the Centrus @ CBD Perdana 3             space is slated for completion by 2020.
approximately 5-minute walk from the USJ7
                                               mixed commercial development that also
LRT station, da:mén USJ Shopping Mall,                                                         Earlier in January, M101 Holdings Sdn
                                               comprises retail lots, office suites and
commenced operations in January 2016.                                                          Bhd launched M101 SkyWheel, a mixed
                                               SOHOs units. The developer has reportedly
The six-storey mall (including lower ground                                                    development located along Jalan Raja
                                               initiated a leasing negotiation that may lead
floor) is part of an integrated commercial     to change of usage to office space if the       Muda Abdul Aziz. The project, scheduled
development that also comprises shop           deal is successful sealed.                      for completion by 2020, will comprise
offices and apartment blocks with a 6-level                                                    the 200,000 sq ft First Sky Shopping
podium car park. Key tenants of the            Gallerie @ De Centrum is located within         Mall (from 48th to 52nd floors), a Planet
new mall include Jaya Grocers, Suki-ya         the 100-acre De Centrum City township           Hollywood Hotel, small offices / flexible
Japanese Shabu-shabu, Starbucks, Coffee        in Kajang that also features residential,       offices (SoFo) units, and a ferris wheel
Bean Tea Leaf, Grand Harbour Restaurant,       academic and recreational components.           located at the 52nd Floor of the building.
Grandmama’s, Morganfields, Tonkatsu,           Key tenants of the mall which commenced
                                               operations during the review period             In April, Crest Builder Holdings Bhd
Nam Heong, Sukiya, Sangkaya plus Tea
                                               include Kentucky Fried Chicken, 7-Eleven        entered into a joint venture (JV) with
Press (Tea Roasters from Japan), Popular
                                               and Optical 88.                                 Prasarana Malaysia Bhd and Detik Utuh
Bookstore, Sothys Paris, Crabtree and
                                                                                               Sdn Bhd to develop a 43-storey single
Evelyn, and Murad.                             During the review period, one expansion         block mixed-commercial development.
Completed in February 2016, The Square @       plan and several new shopping mall              Latitud 8 will comprise a retail podium
One City is one of the few retail components   projects in Klang Valley were unveiled, with    with business and convention facilities
within the 77-acre integrated development      a number of them set to transform the local     (800,000 sq ft NLA), office space and
of One City in USJ25. The three-level retail   retail landscape.                               residential units (SoFos, SoHos and
podium with two blocks of SoHo units atop      In June, IOI City Mall Sdn Bhd unveiled its     duplexes). The JV companies plans to
has yet to commence operation.                 plan to expand IOI City Mall via Phase 2        retain circa 20% to 30% of the retail
                                               which will see another 1.0 million sq ft of     space, with the remaining space to be
On March 22, Aeon Co. (M) Bhd opened
                                               retail space added to the existing mall.        sold to a single party with multiple equity
its 23rd mall. Touted as one of its largest
                                                                                               partners. Located at the underground
flagship malls in the country, the 700,000     In March, BBCC Development Sdn Bhd              Dang Wangi LRT station at Jalan
sq ft four-storey mall, anchored by Aeon       (BBCCD), a consortium made up of Eco            Ampang, it will be the first transit-oriented
Shah Alam Store, also features 200             World Holding, UDA Holdings Bhd and             development (TOD) in Malaysia when
specialty stores with notable tenants such     the Employees Provident Fund (EPF),             completed by 2020.
as Padini Concept Store, H&M, Uniqlo,          inked an agreement with Mitsui Fudosan
Cotton On, Brands Outlet, Index Living         (Asia) Pte Ltd, a subsidiary of Japan’s         In May, developer CK East Group
Mall, Red Lobster, and Olive Garden. Its       Mitsui Fudosan Group to develop and             unveiled its mixed development project,
four-season concept décor is inspired          manage a retail mall with circa 860,000         Rencana TTDI. Located in Taman Tun
by Japan’s seasonal changes – summer,          sq ft NLA at the Bukit Bintang City Centre      Dr Ismail in the city fringe, Rencana
autumn, winter and spring.                     (BBCC) project in Jalan Pudu. The retail        TTDI will encompass SOFOs, 2-storey
                                               mall, to be developed under the Mitsui          garden terraced units, retail lots and
Utropolis Marketplace, the retail component
                                               Shopping Park LaLaport concept which            strata office units. The developer plans
of Paramount Utropolis integrated project
                                               has evolved to “a place where people            to either dispose the retail podium (circa
by developer, Paramount Property, made
                                               interact”, will see the Japanese retail         100,000 sq ft) to a single buyer or retain
its debut in May. The retail component
                                               mall developer / owner bring in new retail      and manage the same for better control
caters mainly to the student population of
                                               brands / tenants from Japan.                    of tenant mix.
the 10-acre flagship KDU University College
campus with notable tenants that include       Scheduled to complete by 2021, it will be       Against headwinds in the country’s retail
Sam’s Groceria, PapaRich, Texas Chicken,       the first LaLaport Mall in Southeast Asia.      industry, both foreign and local retailers
CaliBurger, Sushi Q, Subway, Little Fat        Other development components in the             continued to innovate and strategize.
Duck, Aroi Thai, Grab It, Level Up Fitness     first phase of BBCC comprise a four-star        For example, the increasingly intense
Xpress, RHB Bank and myNews.com.               hotel (to be operated by The Ascott Ltd),       competition has led to departmental store

10
real estate highlights                            malaysia

                                                                                                     investment holding company whilst
                                                                                                     its subsidiaries are in the business of
                                                                                                     general contractors, project management
                                                                                                     and trading in related products.

                                                                                                     In tandem with the growing online
                                                                                                     shopping trend, Central Market
                                                                                                     shopping centre signed a Memorandum
                                                                                                     of Understanding (MoU) with online
                                                                                                     market, 11street, to offer Central
                                                                                                     Market’s tenants products to on-line
                                                                                                     shoppers. The upcoming USJ Wholesale
                                                                                                     City Mall will also launch its e-commerce
                                                                                                     platform www.moora.com.my for its
                                                                                                     tenants to promote its products online
                                                                                                     this coming August.

                                                                                                     The second half of 2016 is expected to
    da : mén USJ Mall                                                                                see the completion of six new shopping
                                                                                                     malls with combined retail space of
                                                                                                     circa 3.36 million sq ft in Kuala Lumpur
giants, Parkson and Aeon, to introduce              flagship store at Courts Megastore in
                                                                                                     and Selangor. They include Pavilion
new elements in their business strategies.          Sri Damansara.
                                                                                                     Elite, KL Gateway, MyTown Shopping
In February, Parkson officially launched            Foreign new retailers / franchises that will     Centre, and Sunway Velocity Mall in
the refurbished Parkson Maju Junction               open outlets in Klang Valley include Aeon        Kuala Lumpur; and The Starling Mall and
(previously known as Maju Junction                  MaxValue Prime at Sunway Velocity Mall           Amerin Mall in Selangor.
Shopping Centre) in KL CBD. The                     while Pezzo, a Singapore-based pizza
                                                                                                     Prime and established shopping centres
refurbished mall incorporates a gourmet-            chain, will open its first outlet in Peninsula
                                                                                                     in the Klang Valley continued to enjoy
concept supermarket and food hall                   Malaysia at da:mén USJ Shopping Mall in
                                                                                                     high occupancies (> 95%). They include
named Foodpark by Parkson, which is the             June / July.
                                                                                                     Suria KLCC and Pavilion Kuala Lumpur
retailer’s first foray into this trade category.
                                                    The review period also saw local food            in KL City; Mid Valley Megamall and The
The second food hall similar to Foodpark
                                                    processor, QL Resources signing a                Gardens Mall in KL Fringe; and Sunway
will be unveiled at the newly completed M
                                                    master franchise agreement with Tokyo-           Pyramid, 1Utama Shopping Centre,
Square Shopping Mall by July.
                                                    listed FamilyMart Co Ltd, the world’s            Empire Shopping Gallery, Subang Parade
Meanwhile, AEON Co (M) Bhd has                      second largest convenience store chain           and The Mines in Selangor.
allocated RM650 million for capital                 after 7-Eleven. FamilyMart is set to enter
                                                    Malaysia with its first store slated to open
expenditure (capex) to develop new malls                                                             Prices and Rentals
and to refurbish malls / stores that are five       by the end of this year.
years old and above, including the existing                                                          Overall, prime shopping centres listed
                                                    Meanwhile, local franchiser, Texchem
AEON Mid Valley, as part of efforts to                                                               under the property portfolio of KLCC
                                                    Corp Bhd plans to set up 11 Yoshinoya,
remain competitive in the industry.                                                                  Stapled REIT, IGB REIT, Sunway REIT
                                                    11 Hanamaru and 11 Sushi King outlets in
                                                                                                     and Pavilion REIT continued to record
Notable outlets that opened in Klang                the country this year.
                                                                                                     higher rates during the review period
Valley during the review period include             Several acquisitions / disposals in the          mainly from new and renewed leases.
Balenciaga in The Gardens Mall; Sam’s               Malaysia retail industry were reported
Groceria, Mydin Mohamed Holdings                                                                     For the 1Q2016 financial results, the
                                                    during the review period. In May, a 45%
Bhd’s premium grocery store in Utropolis                                                             combined revenue for KLCC Stapled
                                                    stake of Jaya Grocer was reportedly
Marketplace; Thailand’s home furnishing                                                              REIT’s retail property was recorded at
                                                    sold to Asean Industrial Growth Fund
retailer, Index Living Mall and Sushi                                                                RM123.48 million, depicting a 2.27%
                                                    (AIGF), a private equity fund managed
King in AEON Mall Shah Alam; senQ in                                                                 year-on-year (y-o-y) increase (1Q2015:
                                                    by CIMB Private Equity and Mitsubishi
Alamanda Shopping Centre, Putrajaya;                                                                 RM120.74million), attributed to higher
                                                    Corp. The Teng family will hold the
and The Store in M3 Mall, Setapak.                                                                   rental rates that became effective during
                                                    remaining 55% and continue to manage
                                                                                                     the quarter.
New retailers that entered the Klang Valley         the grocery chain.
market include French-based Dior Homme                                                               The gross revenue of IGB REIT grew
                                                    In March, Marvellous Future Sdn Bhd,
with its first store in Malaysia at Suria                                                            by 4.6% y-o-y to record at RM131.21
                                                    the holding company of the fashion
                                                                                                     million compared to the corresponding
KLCC Shopping Centre; Hong Kong-                    apparel firm Voir Holdings Bhd, sold
                                                                                                     quarter in 2015 (1Q2015: RM125.44 million).
based eyewear retailer Mujosh’s first               50.71% of its Voir equity interests to
overseas concept store at Pavilion Kuala            Vista Lestari Development Sdn Bhd                The gross revenue of Sunway Pyramid
Lumpur, Shoopen at Fahrenheit 88; and               and its persons acting in concert                Shopping Mall was 6.6% higher for
French sports retailer Decathlon’s first            (PACs). Vista Lestari is principally an          the period ended March 31, 2016

                                                                                                                                              11
compared to the corresponding period            the second half of 2016, competition in     capita currently.
in 2015 mainly due to higher average            the retail market will heighten.
                                                                                            In the A.T. Kearney 2016 Global Retail
net rent per sq ft.
                                                MyTown Shopping Centre and Sunway           Development Index (GRDI), Malaysia is
As at March 31, 2016, the retail property       Velocity Mall, with 1.10 million sq ft      ranked at third position, the highest since
portfolio of Pavilion REIT increased to three   and 1.0 million sq ft NLA respectively      the index started in 2001, indicating that
following the acquisition of da:mén USJ         are slated to open in the last quarter of   the country has vast growth potential both
Shopping Mall and The Intermark Mall in         2016 in time for the year end festive and   in traditional as well as online retail market.
September and December 2015 respectively.       school holiday seasons. These two malls
                                                                                            Malaysia has also won the award of the
                                                which have reportedly secured prominent
During the 1Q2016, gross revenue of                                                         world’s Fifth Best Shopping Destination
                                                retailers will further dilute the market,
the retail property segment in Pavilion                                                     by Expedia UK, and the Second Best
                                                particularly in Kuala Lumpur.
REIT was reported at RM103.64                                                               Shopping Destination 2015 for Muslims
million, up by 1.15% compared to the            There are, however, opportunities in        in the OIC Destination based on Crescent
corresponding period in 2015 (1Q2015:           retail market, particularly in selected     Rating and MasterCard Muslim Travel
RM102.46 million).                              / upcoming locations which are well         Shopping Index.
                                                populated and have low retail space per
Meanwhile, owners of Empire Shopping
Gallery and Evolve Concept Mall
reportedly have intentions to divert their
retail assets.                                  TABLE 6
                                                Shopping Centres Scheduled for Completion / Opening in 2H2016
In June, Mammoth Empire Holdings
Sdn Bhd, owner of Empire Shopping
Gallery in Subang Jaya, cited that it
intends to divest Empire Shopping
Gallery if a concrete offer was received.
The five-storey upper-middle retail
mall with circa 350,000 sq ft NLA has a
rental yield of between 6.5% and 7%.
The property which was last valued at
RM583 million attracts some 6.5 million
shoppers per year.

Earlier in April, JAKS Resources Bhd
also revealed its intention to dispose of
Evolve Concept Mall in Ara Damansara
to strengthen the company’s balance
sheet. Opened in November 2015, the
four-storey retail mall with circa 400,000
sq ft NLA, was reportedly 75% leased as
of December 2015.

                                                Source: Knight Frank Research
Outlook
The projected retail sales growth for
2016 has been revised downwards
from 4.0% to 3.5% following the weak
performance in 1Q2016.
Consumer spending remains a key
challenge in the retail industry with many
continuing to hold back on purchases
due to growing concerns on rising cost of
living and weaker job prospect.

Moving forward, the uncertainties
following the recent Brexit referendum
are expected to further weigh down
market sentiments globally and this will
not augur well for the local retail industry.

With the scheduled completion of some
3.36 million sq ft of new retail space in

12
real estate highlights                            malaysia

HIGHLIGHTS                                  Penang Property MARKET
The RM337 million Bayan Lepas
Expressway comprising an elevated           Market Indications
structure of 3.2 kilometres and a           According to the latest Property Market         start in 1H2016 and to be operational
street-level route of 4.2 kilometres        Report, the total volume of transactions        by 2H2017; SAM’s reinvestment of
linked to Sultan Abdul Halim                for all sectors in the State of Penang for      RM100 million between 2016 and 2018
Muadzam Shah Bridge (2nd Penang             Year 2015 registered a drop of 15.6%            – RM70 million to build a new 120,000
Bridge), was opened to traffic in           against 2014. Similarly, in terms of value      sq ft facility in Bukit Minyak and RM30
early April 2016. The highway,              of transactions, the drop is recorded           million on its Penang plant for aerospace
capable of accommodating a traffic          at 15%. Residential transactions which          work; Robert Bosch’s RM66 million
volume of 70,000 vehicles daily, is         made up 70.9% [was 72% in 2014] of the          expansion of its Penang plant; and Tek
part of the traffic dispersal initiative    total volume, recorded a drop of 16.9%          Seng Holdings Bhd, a solar cell maker,
in the area and is expected to ease         and 18.5% in terms of the volume and            will spend RM237 million to expand its
traffic congestion between Batu             value of transactions done respectively         production capacity to triple its existing
Maung and Sungai Nibong.                    for the period compared – Year 2015 vs          size this year.
                                            Year 2014. Whilst only the “industrial” and
                                            “others” subsectors registered growth           High End Condominium
The Penang State Government                 of 25.4% and 215.4% respectively over           Hunza Group, a well-established and
is hoping to secure a conditional           2014 in terms of number of transactions         reputable property developer in Penang,
approval for the first line of the          done, the “commercial”, “industrial” and        has launched ALILA² as a sequel to their
RM27 billion Penang Transport               “others” sub-sectors registered positive        successful Alila Horizons and Alila Homes
Master Plan (PTMP) where plans              growth showing increases of 19%, 5%             in Tanjong Bungah. ALILA² is sited away
for the Bayan Lepas Light Rail              and 1,034.5% respectively in the value of       from the hustle and bustle of Georgetown
Transit (LRT) to the Land Public            deals done for the same period compared.        and yet is close enough to the city, Batu
Transport Commission (SPAD) was                                                             Ferringhi, international schools, medical
                                            Penang International Airport, which has         facilities, retail outlets and the varied dining
submitted for approval on March 29,
                                            reached its capacity of accommodating           choices Penang is known for.
2016. The 30km Bayan Lepas LRT,             6.5 million passengers per annum,
expected to provide a speedy route          has been earmarked for an expansion             ALILA² is a low density modern resort-
to the airport, will start from Komtar      programme to cater for increased                inspired condominium development
and traverse through densely                capacity of serving 10 million passengers       comprising 2 towers sitting atop a
populated residential, commercial                                                           6-storey podium over 9.8 acres of lush
                                            a year. Malaysia Airports Holdings Bhd
and industrial areas of Jelutong,                                                           landscapes; the 2 towers have been
                                            will construct a multi-storey car park that
                                                                                            designed to comply with Malaysia’s
Gelugor, Bayan Baru / Bayan Lepas           will house 3,000 lots of parking space to
                                                                                            Green Building Index (GBI) Certification.
and Penang International Airport            be done in two phases. The first phase
                                                                                            The comprehensive range of recreational
before ending at the proposed               that will include the completion of 1,500
                                                                                            facilities includes infinity pool with jacuzzi
Penang South Reclamation                    lots will be operational in the first-quarter   beds, seats and aqua gym equipment;
Project development.                        of 2017 (1Q2017), while the second              two-storey lounge area with BBQ pit,
                                            phase will be opened in 1Q2018.                 dining table and seating, and entertainment
                                            New investments and reinvestments into          deck; tennis court and half-size basketball
                                            Penang’s industrial sector include Boston       court and themed pocket spaces with
                                            Scientific’s new facility in Batu Kawan         feature shelters, giant swings and cocoon
                                            Industrial Park where construction will         seating to enjoy the beauty of nature.

                                                Alila 2

                                                                                                                                         13
Expected to complete by 4Q2017, ALILA²              as 2H2015. Rents secured at Hunza Tower         In prime shopping malls, rental rates for
offers 270 large semi-furnished apartment           is about RM3.50 per sq ft per month where       ground floor retail lots generally range from
units at prices ranging from RM790 to               the occupancy rate is 100%.                     RM13 to above RM35 per sq ft per month,
RM1,066 per sq ft for the typical units sized                                                       depending on the mall, location and size of
                                                    Average occupancy rates at Suntech
from 1,905 sq ft to 3,235 sq ft and from                                                            the units.
                                                    and Menara IJM Land, both newer office
RM993 to RM1,000 per sq ft for penthouse
                                                    buildings located outside the city, currently
and duplex units sized from 3,900 sq ft to
                                                    stands at 95%, a slight 1% increase
                                                                                                    Outlook
5,789 sq ft. Optional furniture packages are
                                                    compared to 2H2015. Asking rents at             With the continuing challenging global
available and a minimum of 2 car parking
                                                    these two buildings range from RM2.60           and national economic environment, the
bays are provided for each unit.
                                                    to RM3.30 per sq ft per month, with one         negative property market sentiments have
Buyers of the high-end condominium sector           building recording slightly lower rents.        remained and the scenario is not expected
have higher expectations; thus, developers                                                          to improve in the immediate future.
of many newer launches offer units which are        Retail
fitted out with built-in cabinets to bedrooms,                                                      Further softening and consolidation of
                                                    The existing supply of purpose-built
kitchen cabinets c / w hood / hob / electrical                                                      the residential sector is expected with
                                                    shopping space on Penang Island remains
items as well as light fittings, air-conditioning                                                   increasing supply and poorer take up rates.
                                                    unchanged at 2H2015’s level of 6.69 million
units and quality sanitary fittings.                sq ft. No new purpose-built shopping malls      Despite the fact that there is no new incoming
There are very few recorded                         were completed on the island in 1H2016.         supply, the office market has plateaued with
transactions of larger sized                        M Mall 020, Phase 2 of Penang Times             occupancies generally stable.
condominiums with built-up areas                    Square which opened for business in late
                                                    December 2015 had its official opening on       Landlords of secondary buildings are
from 3,500 sq ft to 6,000 sq ft in
                                                    May 28, 2016. There are several proposed        expecting pressures from tenants to
the secondary market in 1H2016.
Transactions in 1H2016 of such sized                shopping malls coming up over the next          suppress rental rates.
units in Tanjong Bungah range from                  five years on the island, please refer to
                                                                                                    In the retail sub-sector, the prime malls
RM446 / RM626 per sq ft (both at The                Table 7.
                                                                                                    are still performing well but are not totally
Cove) to RM793 per sq ft. Smaller                                                                   spared the effects of the weak economy.
                                                    Occupancy rates for the prime shopping
sized units at Gurney Paragon were                                                                  Occupancies and rental rates will also come
                                                    malls on the island range from 80% to 98.5%
resold at RM808 per sq ft to RM1,150                                                                under downward pressure. Secondary malls
                                                    whilst for the secondary shopping malls, the
per sq ft whilst at Quayside, Seri
                                                    range is generally from 70% to 90%.             will face even greater challenges.
Tanjong Pinang, units were resold at
prices varying from RM768 per sq ft to
RM1,138 per sq ft in 1H2016.
Asking rents are noted to be slightly               TABLE 7
lower when compared to last year. For               Future Supply of Retail Space within Penang Island
larger sized units in Tanjong Bungah,
asking rents generally range from RM1.10
to RM2.30 per sq ft per month whilst
some landlords are still holding onto
high asking rents of RM2.80 to RM2.95
per sq ft per month. For similar sized
units in Gurney Drive, asking rents vary
from RM1.80 to RM2.60 per sq ft per
month. For smaller sized units in Tanjong
Tokong and Gurney Drive, asking rents
are in the range of RM2.20 to RM2.90 per
sq ft per month whilst some landlords
have higher asking rents of RM3.50 to
RM4.40 per sq ft per month.

Office
The existing supply of office space (buildings
of 10-storey and above) on Penang Island
remains at 2H2015’s level of 5.59 million sq ft.

The occupancy rates for the 4 prime office
buildings monitored in Georgetown generally
remain at 2H2015’s level, ranging from 80% to
100%. Current asking rentals for the older
buildings generally range from RM2.80 to
RM3.00 per sq ft per month, the same level          Source: Knight Frank Research

14
real estate highlights                             malaysia

HIGHLIGHTS                                 Johor Bahru PROPERTY Market
Iskandar still attractive to investors;
cumulative investments now stand
                                           Market Highlights
at RM202 billion from 2006.                The headliner for the 1H2016 for Johor is        serve as a global procurement centre for
                                           of course Forest City. The 1,386-hectare         the group. Supply chain management, key
                                           mixed development project spread                 decisions concerning growth strategies
The international launch of the            over four man made islands by Chinese            and management of profit and loss of the
Forest City development by Chinese         heavyweight developer, Country Garden,           group will be carried out at the hub. This
developer Country Garden. Four man-        was officially launched by the Sultan of         adds to the growing list of global players
made island over 1,384 hectares, to        Johor and The Prime Minister on March 6,         setting up in Johor such as Pinewood
be developed over 20 years.                2016. An entire city designed from scratch,      studios and Hershey’s.
                                           this mega- development is set to include
                                                                                            In March 2016, 3Cnergy, a property solutions
                                           extensive green landscaping and to utilize
Despite difficulties, the PIPC                                                              company has entered into a conditional
                                           clever design to create a green ‘smart city’.
project in Pengerang is still a                                                             sale and purchase agreement (SPA) for
                                           The development is expected to take over
key long term investment and                                                                acquisition of all the issued shares in Liberty
                                           20 years to complete. The project has been
                                                                                            Bridge Sdn Bhd for RM186 million. Pursuant
stakeholders are committing more           heavily marketed and has generated a buzz
                                                                                            to the SPA, 3Cnergy will acquire Liberty
capital to the project.                    around town that has been sorely missed
                                                                                            which owns ten parcels of undeveloped
                                           over the last 6 months.
                                                                                            land measuring approximately 37.4 acres in
                                           At the launch, the Prime Minister announced      Puteri Harbour. 3Cnergy intends to continue
                                           that Forest City will be accorded duty           with Liberty’s existing plan to develop
                                           free status. In addition to that, further tax    the land into an integrated development
                                           incentives for green developers, tourism,        consisting of SOHO, serviced apartments,
                                           health and education sectors were also           condominiums, office lots, office tower, hotel,
                                           bestowed upon Forest City. Companies             street front retail and activity retail - a mixed
                                           that are eligible for the above tax incentives   development with predominantly residential
                                           are also free from the usual restrictions        components and complemented with retail
                                           / equity conditions placed upon foreign          and commercial components.
                                           ownership of company shares.
                                                                                            The 197km Gemas-Johor Bahru
                                           As of March 2016, Iskandar Malaysia              electrified double-tracking project (EDTP)
                                           has registered cumulative investments of         is expected to start at year-end upon
                                           RM202.45 billion starting from 2006, mainly      completion of its land acquisition; it is
                                           from the manufacturing sector which              expected to take three to five years to
                                           accounted for about 27%. Of this total,          complete. The double-tracking rail has
                                           RM103.50 billion or about 51% of the total       a capacity for the train to run at 160km
                                           investments has been realized. Foreign           per hour and an operating speed limit of
                                           investors have contributed RM81.01 billion       140km per hour.
                                           to the total cumulative investments which
                                                                                            UEM Sunrise Bhd (UEMS) has entered into
                                           represents approximately 40% of the total
                                                                                            a JV and shareholder’s agreement with
                                           investment thus far.
                                                                                            Mulpha International Bhd (MIB) to jointly
                                           The locally listed JCY Group, a regional         develop and optimise the value of 38 parcels
                                           producer of hard disk drive components,          of freehold land with a combined land size of
                                           has announced that it will be setting up         231.35 acres at Gerbang Nusajaya. UEMS
                                           its principal hub in Johor. Announced            and MIB will develop the land into a mixed
                                           by MIDA on April 2, the principal hub will       residential and commercial development

                                               Impression of Forest City

                                                                                                                                          15
comprising luxury landed villas as well as         TABLE 8
mixed use and neighbourhood retail shop            Cumulative Investment In Iskandar Malaysia 2006-1Q2016 (RM ‘ Billion)
developments. The project is expected to
span over a maximum period of 20 years
with an estimated GDV of over RM5 billion.
In January 2016, Multimedia University
(MMU) launched its new campus at
Educity which was built on the success of
its two campuses in Melaka and Cyberjaya.
Occupying an area of 45,000 sq ft, the new
campus can accommodate 500 students
and provides state of the art facilities such as
digital library, media resource centre, gallery,
post production laboratories, shooting
stage, recording studio and workshops.
Hua Yang Bhd has acquired Grand View
Realty Sdn Bhd which owns the 73.16-acre           Source: IRDA
freehold land at Pasir Gudang for RM52.9
million. It plans to develop it with cluster       Residential                                        RM480,000 per unit. All international units
houses, semi-detached houses and shop                                                                 have been sold out. Taking advantage of the
offices with an estimated GDV of about             The looming oversupply and tepid market            good response, the next phase is targeted to
RM346.4 million.                                   activity has justifiably caused uncertainties      launch in July 2016.
                                                   in the market and is representative in the
Swiss-Garden International Sdn Bhd had             reduced number of launches so far in 2016.         Hua Yang Bhd has launched Tower A, the
a soft opening for its 205-room Swiss-             Some developments that were in the pipeline        second tower of its Citywoods serviced
Inn Johor Bahru in Jalan Syed Mohd                 have been shelved for now as the market            apartment project, along Jalan Abdul Samad.
Mufti. The company had spent RM63                                                                     Like Tower B, which was launched in
                                                   sits in the ‘wait-and-see’ camp. That said
million and two years renovating and                                                                  September 2014, Tower A is also a 19-storey
                                                   there are still good deals to be found and the
refurbishing the 10-storey existing office                                                            apartment block with only nine units per
                                                   momentum is building for the buyers. Notable
building into a mid-sized hotel.                                                                      floor. Tower A offers three design layouts
                                                   activities in the Johor Bahru residential sector
                                                                                                      ranging from 764 sq ft, 958 sq ft and 1,249
The RAPID project in Pengerang is still            for 1H2016 are as follows:-
                                                                                                      sq ft respectively with prices starting from
seeing committed development from                  The most anticipated new high rise                 RM446,000 per unit.
stakeholders in the face of the current            apartments launched in 1H2016 is phase one
global oil and gas crisis. As at April 2016,                                                          In March, Mah Sing Group Bhd held a
                                                   of Forest City. It consists of 482 units with
the committed investments in Pengerang                                                                topping-up ceremony for The Meridin @
                                                   sizes ranging from 753 sq ft to 1,862 sq ft
Intergrated Petroleum Coplex (PIPC) are                                                               Medini which symbolizes the completion
                                                   and gross selling price from RM1,200 per sq
from Petronas developing the Petronas                                                                 of the development’s structure. Launched
                                                   ft. This launch has received plenty of attention
Integrated Complex (PIC) valued at                                                                    in 2013, the completion of The Meridin@
                                                   globally and is continuing to be aggressively
RM104.73 billion, as well as the JV                                                                   Medini’s structural works comes with the
                                                   marketed internationally.
                                                                                                      CONQUAS Structural Assessment score
between Dialog Group Bhd, Royal Vopak
                                                   Bukit Impian Residence, which was launched         above 80 point. The Meridin@Medini is
of Netherlands and Johor State Secretary
                                                   in March, offers 100 units of 2-storey terraced    an integrated development offering hotel-
Inc (SSI) with their Pengerang Deepwater
                                                   houses with built-ups of 2,567 sq ft to 2,638      serviced suites, serviced residences, SOVO,
Terminal valued at RM11.64 billion. This
                                                   sq ft, and priced from RM648,000 to RM1.13         and retail shops. One of the earlier headline
is a welcome sign to many as it shows
                                                   million per unit.                                  developments of Medini, its completion is
that PIPC is a long term investment with
                                                                                                      highly anticipated.
stakeholders that have visions that go             UEM Sunrise Bhd has launched Melia
beyond the current economic situation.             Residences, the first freehold landed
The complex is expected to be operational          strata residential development in Gerbang
early 2019.                                        Nusajaya. The 73.64-acre development
                                                   offers 625 units of 2-storey terraced houses
Gleneagles Medini Hospital commenced
                                                   with built-up areas ranging from 2,006 sq
its operation at the end of December
                                                   ft to 2,594 sq ft. The selling prices for
2015 with a capacity of 300 beds and
                                                   phase one starts from RM550,000 per unit.
162 medical suites. Managed by IHH
                                                   The positive response from the market has
Healthcare, the RM400 million hospital
                                                   prompted the launch of Phase 3.
is located on a 6-hectare land in Medini,
Iskandar Puteri. The world-class hospital          Mutiara Rini Sdn Bhd recently launched
attracts local and foreign visitors especially     Phase 5B of Rini Homes comprising a total of
from Singapore due to its strategic location       223 units of 2-storey terraced houses. These
and is set to offer one of the best medical        houses have built-up areas ranging from
                                                                                                          Meridin@Medini
services currently available in the country.       1,694 sq ft to 2,327 sq ft, and are selling from

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