DTZ: Sluggish market to pick up after GE13

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KUALA LUMPUR: The uncertain political landscape has cast a shadow over the Malaysian property market although things should pick up after the 13th general election (GE13) on May 5, according to DTZ Research’s Property Times Kuala Lumpur 1Q2013 released on April 25.
The report looked at transactions and activities in investment, office, retail and residential markets in Kuala Lumpur.
One of the most significant developments early this year was 1Malaysia Development Bhd (1MDB), the master developer of Tun Razak Exchange, announcing it has secured a strategic partner for the city’s new financial hub in Aabar Investment PJS, an Abu Dhabi government-linked entity as part of an initiative worth RM18 billion, said DTZ.
However, the first quarter (1Q) overall saw slow investment activity with only two major transactions in Kuala Lumpur — The Icon (East Wing) with net lettable area (NLA) of 267,907 sq ft acquired by Top Glove Corp Bhd from TS Law Realty at RM842 psf and the proposed office building PJ Sentral (by Nusa Gapurna Development Sdn Bhd) with NLA of 294,118 sq ft to Intellectual Property Corp of Malaysia at RM850 psf.
Iskandar Malaysia in Johor continued to draw the interest of investors and developers such as Singapore’s CapitaLand Ltd.
“The announcement of a high-speed rail link between Singapore and Kuala Lumpur has further boosted domestic sentiment,” said DTZ.
Due to the potential oversupply in the office sector in the Klang Valley, investors are looking towards the retail sector with a focus on assets targeting the mid-market, which are deemed more resilient in the event of a downturn, as well as hotels to benefit from a still growing tourism sector driven by booming regional travel, it said.
DTZ is optimistic about the market post-GE13. It said: “The pending listing of the billion-ringgit KLCC Real Estate Investment Trust will hopefully boost investment volume in the coming months. Uncertainties arising from politics will be a short-term dampener and much of it is already factored into the market. However, irrespective of the outcome of the GE, the market outlook remains favourable.”
Office stock totalled 68.1 million sq ft in 1Q thanks to the addition of 699,000 sq ft from two buildings — Menara CIMB [email protected] Sentral and Menara A in Glomac Damansara.
“Despite an increase in office stock, the vacancy rate declined marginally to 15% in 1Q from 16% in the preceding quarter, as a result of the strong absorption led by the oil and gas sector and growth in other sectors such as finance, IT and telecommunications,” DTZ said.
The two new buildings, which achieved healthy occupancy rates due to high pre-letting rates, and the occupancy of completed buildings such as
Menara Darussalam, Menara Felda, Menara Worldwide and Integra Tower, contributed to the decline in the vacancy rate, DTZ said. All four buildings are located in the city centre.
“Average prime office rent and capital value remained stable in 1Q at RM6.13 psf per month and RM838 psf respectively,” DTZ said. “An anticipated 3.1 million sq ft of office space will be completed in the remainder of 2013 and another 4.3 million sq ft will be completed by 2014. This will exert downward pressure on both occupancy rates and rents.”
On the retail market, DTZ said it remains resilient with 91.4% occupancy rate, sustained by strong domestic demand. “The stock in Kuala Lumpur stood at 23.5 million sq ft with no major completion registered for six consecutive quarters since 4Q 2011.”
The sector continues to garner local and foreign investor interest. “Lend Lease Group of Australia is in discussions to invest in three development projects to expand its portfolio in Malaysia, following the success of Setia City Mall in Shah Alam and the deal of Naza TTDI’s KL Metropolis,” said DTZ.
“Aeon acquired land in Shah Alam for its new store after aggressively acquiring land in Penang, Johor, Kedah and Perak since 2010. Uniqlo is looking to open a store in Alamanda, Putrajaya, to reach shoppers that live away from the city centre,” DTZ added.
In Penang, a Premium Outlet is planned in Batu Kawan to take advantage of the second Penang bridge, and is expected to become a major tourist destination. Johor Premium Outlets is also capitalising on its popularity and is in the midst of Phase 2 expansion.
In the residential sector, four projects with a total of 1,442 condominium units were completed in 1Q. “Another 4,240 units are expected for the rest of the year, compared with 784 units for the whole of 2012,” said DTZ. This high number of completions will exert pressure on rental values, especially in the city centre.
The first quarter also saw overall average price rise 1.2% quarter-on-quarter to RM678 psf from RM670 psf in 4Q 2012, while the average rents remained relatively stable at RM3.60 psf per month from RM3.65 psf per month in the previous quarter.
DTZ said 1Q was sluggish with no new launches as developers remained cautious. However, this is set to change with a vibrant market expected in the second half of the year with many major planned developments such as Eco Business Park (Cheras), The [email protected] Bund (Setapak), and Menara Titiwangsa (KL) by Ekovest Bhd.
Other projects include The Mews by Eastern & Oriental Bhd, Star Residences by Symphony Life (formerly Bolton Bhd), and a 50-storey mixed development next to Pavilion by Urusharta Cemerlang Sdn Bhd.
“There are also pending residential launches outside the city centre including Boulevard Business Park at Jalan Kuching (Magna Prima Bhd), Verve Suites KL South along Old Klang Road (Albatha Bukit Kiara Holdings Sdn Bhd) and The Establishment in Bangsar (Keystone Land Developments Sdn Bhd),” said DTZ.

This article first appeared in The Edge Financial Daily, on May 3 2013.