21 February 2017, Malaysia – Knight Frank Malaysia, the global property consultancy, launches the Malaysia Commercial Real Estate Investment Sentiment Survey (CREISS) 2017. The survey takes a litmus test of insights and preferences of key players, namely developers, fund / REIT managers and lenders in the commercial sector for the year 2017.
Sarkunan Subramaniam, Managing Director, Knight Frank Malaysia says “This survey predicts the commercial real estate outlook based on sentiments of industry players. Both office and retail markets will continue to be under pressure with rental and occupancy due to oversupply. While the logistic / industrial sub-sector is expected to gather pace in 2017 with the growth of e-commerce driving the demand for logistic / industrial space.
Despite the challenging operating environment, the respondents have express their interest in exploring investment opportunities in various regions. Sabah & Penang were voted as the highly attractive regions for hotel / leisure investment, likely attributed to their strong tourism market.”
Survey Respondents
The survey was conducted using an e-survey mechanism distributed throughout Knight Frank’s vast database with key players in the local commercial sector.
We have respondents in Senior Management levels this year, consisting of:
· 77% : Developers
· 16% : Fund/REIT Managers
· 7% : Lenders
Sub-sectors Investment by Industry Players
· We see an increase of interest in the healthcare/ institutional sub-sector among developers in 2017, 11% more appear to be more interested as compared to 2016.
· Lenders will continue to provide financing for the retail and office sub-sectors although the lending guidelines may be more stringent now.
· Fund / REIT managers are switching their investment focus to logistics/ industrial sub sector as growth in e-commerce drives demand for logistics/ industrial space.
Regions of Investment by Industry Players
· In 2016, majority of the developers were active in Greater Klang Valley. However, they have plans to diversify their activities to other growing regions such as Johor, Penang and Sabah.
· Similar to 2016, fund / REIT managers and lenders will continue to spread their portfolio across the regions – Kuala Lumpur, Selangor, Penang, Johor and Sabah.
2017 Outlook – Investment Plan by Region
· Kuala Lumpur remains the top choice for commercial investment / development (29%), followed by Selangor (23%), Penang (17%), Johor (20%) and Sabah (11%).
· When compared to 2016, is noted that respondent’s interests in the capital city have waned marginally for the year ahead. More respondents are looking to diversify their investments to popular and upcoming regions such as Penang, Johor and Sabah.
2017 Outlook – Active Sub-sectors in Regions
· Survey revealed that office and retail sub-sectors in Kuala Lumpur will continue to be active.
· Johor and Selangor will continue to attract industry players for the logistics/ industrial sub sector.
· With 26% responses, Penang remain the top pick for hotel / leisure sub-sector.
· The healthcare / institutional sub-sector in Johor garnered 36% responses likely attributed to the growing industry and potential spillover from Singapore – Johor offers affordable quality healthcare.
2017 Most Attractive Sub-sectors
· The attractiveness of investing in the hotel / leisure sub sector leapt from 65% in 2016 to 93% in 2017.
· Sabah and Penang were voted as most attractive regions for hotel / leisure investment, likely attributed to their popular tourism market.
· Majority of respondent opined that Johor and Selangor are more attractive for the logistics / industrial sub-sector.
Favourable & Unfavourable Factors Affecting Commercial Real Estate Investment Sentiment
· The on-going MRT and other road & rail infrastructure works remain as top favourable factor for the past three consecutive surveys.
· Second favourable factor is the availability of good stock / investment opportunities.
· The availability of equity capital / fund are expected to be a less favourable factor in 2017 due to growing uncertainties in the global and domestic economy.
Overall Commercial Market Performance
· Half of the respondents were unsatisfied towards the overall commercial market performance in 2016.
· As compared to 2016, more respondents felt less optimistic towards the overall economy and commercial performance in 2017.
Overall Performance by Sub-sectors
· The respondents were not satisfied with the performance of the office and retail sub-sectors in 2016 and expect the outlook to remain cloudy in 2017.
· The outlook for the logistics/ industrial and healthcare/ institutional sub-sectors which enjoyed a fair performance in 2016 is expected to improve in 2017.
2017 Expected Performance by Sub Sectors
Capital Value
· The majority of the respondents expects the capital values for all sub-sectors to hold steady.
· 32% of the respondents expect healthcare/ institutional to increase.
Rental Values for Office, Retail and Logistics / Industrial Sub-sectors
• More 50% of the respondents expect rental reduction in office and retail sub-sectors.
• 70% of the respondents expect stable rentals in the logistics/ industrial sub-sector.
Average Room Rates (ARR) for Hotel Sub-sector
• 53% of the respondents expect ARR to remain steady
Occupancy Rates for Office, Retail, Hotel / Leisure and Logistics / Industrial Sub-sectors
• 64% and 59% of the respondents expect occupancy of office and retail to decrease.
• 48% of the respondents expect the hotel/ leisure sub-sectors occupancy levels to hold.
• 64% of the respondents expect the logistics/ industrial sub-sectors occupancy levels to hold.
Yield Performance by Sub-sectors
• More than half of the respondents expect yields to stagnate.