This article first appeared in City & Country, The Edge Malaysia Weekly on January 31, 2022 - February 6, 2022

There were fewer completions and launches of property projects in Malaysia in the second half of 2021 (2H2021) as the strict measures to curb the spread of Covid-19 delayed construction work, project delivery and completion of real estate transactions, according to Knight Frank Malaysia’s Real Estate Highlights 2H2021 report. The report, released on Jan 6, covers the property market performance of the Klang Valley, Penang, Johor Baru and Kota Kinabalu.

In Kuala Lumpur, the cumulative supply of high-end condominiums/residences stood at 66,128 units last year, with one completion — Ascott Residence (199 units) — during the period in review. About 6,971 units (16 schemes) are slated for completion by 1H2022, following the country’s transition to Phase 4 of the National Recovery Plan.

“Developers are still holding back on launching new projects and may focus on completing projects under construction and/or adopting soft launch/pre-launch strategies to gain some initial market interest before the official launches. Four projects were officially launched, namely Est8 @ Seputeh, Residensi 38 Bangsar, The Cedar and Alfa Bangsar, while The Atrium and Laurel Residence were previewed/soft-launched,” says the report.

The pandemic sparked demand for properties away from the hustle and bustle of the city, as evidenced by zero new launches in KL city during the period in review. The gross selling price of newly launched residential schemes in city fringe areas ranged from RM748 to RM1,700 psf.

According to the report, the average asking prices for selected schemes in KL city, Ampang Hilir/U-Thant and Bangsar were marginally lower than the prices in 1H2021 while the submarkets of Damansara Heights and Kenny Hills remained in positive territory. The average transacted price in Mont’Kiara continued to hold steady.

In KL city and Bangsar, the average rents at selected high-end high-rise schemes dipped marginally. For the remaining submarkets, the asking rents remained stable. 

“Moving forward, activity in the rental market is anticipated to pick up as the country’s borders gradually reopen, which will ease short- and long-term visits by business travellers and investors, starting with the Vaccinated Travel Lane between Singapore and Malaysia, where mandatory quarantine rules are exempted,” says the report.

According to the National Property Information Centre, the volume of transactions of high-rise residential properties, including serviced apartments in KL, saw an upward trend in 3Q2021, increasing 25.5% on the quarter, supported by gradual easing of movement restrictions and reopening of sales galleries.

Amid market uncertainty, potential purchasers and investors will continue to adopt a “wait and see” approach, although this may be an opportunity for genuine buyers and investors looking to invest in luxury properties in prime locations such as KLCC and Bukit Bintang.

The office sector will take some time to return to pre-pandemic levels even though most employees are slowly returning to their offices. While remote and hybrid working models are gaining traction, some companies — especially multinational corporations — are still evaluating their future workplace strategy, as physical office space remains important for collaboration purposes and to ensure high productivity, says the report.

In 2H2021, the total supply of office space in the Klang Valley stood at 112.6 million sq ft, following the completion of Plaza Conlay @ Conlay 301 in KL and Imazium @ Uptown in Selangor.

“There are nine office buildings scheduled for completion by 1H2022, with five in KL city and two [each] in the KL fringe and Selangor respectively. The upcoming completions in KL city are Menara Affin, PNB 1194, The Stride @ Bukit Bintang City Centre (BBCC), Merdeka 118 and UOB Tower 2,” says the report. 

“The MET Corporate Towers and Aspire Tower are located in the KL fringe while Empire City Blocks J and G are in Selangor. These completions will add about 5.2 million sq ft of space to the Klang Valley’s existing cumulative office stock.”

The overall occupancy rate of purpose-built office (PBO) space in KL city dipped further to 65.5% in 2H2021, while occupational demand in Selangor came under pressure at 74.2%. The KL fringe’s overall occupancy rate remained resilient at 86.1% during the period in review.

Meanwhile, the average monthly rental rate of office space in KL city declined to RM6.79 psf in 2H2021, as the prolonged pandemic continued to affect the economy and businesses. “The resurgence of Covid-19 cases further weakened leasing activity, as more corporations and companies reviewed or postponed their real estate decisions to strike a balance between driving growth while maintaining operational and cost-efficiency,” says the report.

“The average office rent in the KL fringe was lower at RM5.60 psf per month, and it decreased marginally to RM4.10 psf per month in Selangor. Asking rents for Prime A+ and Grade A office space in KL city ranged from RM5 to RM12 psf per month, depending on the location. In the KL fringe, it ranged from RM6.20 to RM8.50 psf per month, while similar grade office space in Selangor commanded competitive monthly rents of RM4.50 to RM7.50 psf.”

The report notes that the growing interest in the co-working segment is expected to continue due to its flexibility of enabling companies to scale up or down their space requirements without committing to a longer-term plan. It is also a good option for new occupiers looking to navigate the current challenging environment.

In the near term, rental rates and occupancy levels of office buildings in Malaysia — especially in the Klang Valley, where there is an imbalance between supply and demand — will continue to experience downward pressure, says Knight Frank. 

As companies rightsized and relocated during the pandemic, many fit-out units were left empty. Landlords are more ready to negotiate competitive rents in this tenant-led market, resulting in a declining rental trend, especially in KL city. The occupancy level in the KL fringe appears to be stabilising as landlords are willing to negotiate rents to retain tenants.

Following the completion of Pavilion Bukit Jalil, the total supply of retail space in the Klang Valley stood at 64.86 million sq ft in 2H2021. The report says 10 shopping centres/supporting retail components — with a total retail space of 6.62 million sq ft — are expected to be completed by 1H2022.

According to Knight Frank, retailers continue to reel from the onslaught of the pandemic, with colonial outlets such as Coliseum Café in Jalan Tuanku Abdul Rahman and Sin Hoy How restaurant in Jalan Tun H S Lee crumbling under pressure. The Rasa Food Arena in Suria KLCC and F.O.S clothing store in Mid Valley Megamall have also ceased operations after 22 years.

“Selected international brands such as Element Fresh from China and 108 Matcha Saro from Japan have shuttered their Malaysian outlets, whereas the local retail industry is seeing the impending exit of TopShop, TopMan, Miss Selfridge, Dorothy Perkins and Wallis from the UK,” says the report.

Investor confidence remained largely lacklustre during the period in review, with only one notable transaction — Empire City Mall — which forms part of the integrated development of Empire City in Damansara Perdana that is under construction.

The report says the earnings of mall operators and real estate investment trusts (REITs) were impacted by the provision of further rental rebates and marketing assistance to retailers. Prime shopping centres continue to suffer from the weakening average gross rental revenue and lower net property income margins in the previous quarters. The proactive and decisive implementation of business continuity efforts by mall operators, however, are expected to sustain occupancy levels at prime shopping centres in the Klang Valley.

In 2020, a total of 1,686 industrial properties with a collective value of RM7.49 billion changed hands — the least market activity in the past five years due to the pandemic. “However, the average price per transaction showed an increase of 21.2%, indicating better business prospects in the market,” says Knight Frank.

“Petaling Jaya and Klang continued to contribute most of the market activity in 2H2021, accumulating 24.2% and 22.7% of the total transacted volume respectively. The cumulative existing industrial property stock in the Klang Valley stood at 46,316 units during the period. Another 1,289 units of factories/warehouses are currently under construction, while about 1,716 units are under planned supply.”

Klang leads in future supply, with 411 units under construction and 934 units under planning, while Petaling Jaya has an incoming supply of 302 units and none in the planning pipeline. The lower future supply may be due to the limited land for industrial developments.

The average monthly rental rates of selected notable manufacturing facilities and logistics/distribution centres in Shah Alam and Klang remained stable during the period in review, ranging from RM1.80 to RM2.20 psf and from RM1.30 to RM1.60 psf respectively. These rates are expected to hold steady in 2022.

In the short to medium term, the reopening of the country’s economy is anticipated to spur demand in the industrial sector. With global growth and support for sustained policy, the improving market trajectory is expected to accelerate in 2022, backed by the gradual normalisation of economic activities and positive spillover effects from continued improvement in external demand.

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