“The economic market goes in cycles. It has been doing so for decades and there is no reason for it to change now. It will continue to be cyclical and things will move on,” says Siva Shanker, Immediate Past President of Malaysian Institute of Estate Agents (MIEA). With over three decades of experience in the property industry, Siva is well-placed to give a talk on the market trends affecting the office sector and to review and forecast the outlook for the coming year.
According to Siva, it was easy to gauge when things are not all rosy in the commercial property sector. “The first sign is when they start offering agents bigger commissions,” he points out. “Next is when they start to slash rentals.” He says that while some have resorted to these measures, the fact that neither has happened on a large scale is indicative that the market has not panicked yet.
However, the move by some banks to shrink operations by closing branches and reducing staff is not a good sign, believing that this move will have a trickle down effect on other industries. Siva pointed out a number of other significant negative indicators. For starter, the government lowered the GDP forecast for 2016 to 4 – 4.5% and the actual figure for 1Q2016 was the lowest since 3Q2011 at 4.2%. The unemployment rate rose to 3.4% (up by .03%) and household debt stood at 89.1%.
Directly related to the property segment, residential loan applications were recorded to be 10% lower while the amount of loans approved dropped by 14.6%, with the ratio of approval to applications standing at 50.2%.
New Floor Space
It was pointed out that by the second half of this year, a further 5.8 million sq ft of office space will come onto the market.
Some of the significant projects include:
• Public Mutual Tower
• JKG Tower, KL City
• Menara Ken, TTDI
• Menara Hong Leong, Damansara Height
• Iconic Tower, Signature Tower – Empire City
Siva noted a worrying trend in that occupancy rate fell to 83% from nearly 90% in 2H2015. He noted that in his experience, this figure usually hovered above the mid to high 80s and believes that the slump will drop further a few more percentage points the following year.
One of the key observations is that many organisations no longer feel compelled to seek an address within the Central Business District (CBD). Siva notes that Kuala Lumpur’s CBD has shifted over the decades, where it comprised the area near the Daya Bumi Complex in the past, it is now squarely located in and around KLCC complex and the iconic Twin Towers.
While these locations will always command the highest rents, many organisations now surmise that their needs can be met with fringe or suburban business addresses. The traffic situation and the completion of the new Light Rail Transit lines have had a pronounced effect on this mind shift of needing CBD premises. Siva firmly believes this shift will continue in the intervening years.
“I always say I am in the ‘people business’, not ‘property business’,” says Siva. “We need to cultivate the right mentality with regards to maintenance. We must learn to take care of tenants.” This, he believes will be key in arresting the decline in uptake of office spaces, pointing to the oft-repeated phrase that ‘Malaysia is first-world when it comes to building new structures, but have a third world mentality maintaining it’.
Siva says it is imperative that property industry professionals fully understand the potential tenants’ needs and to cultivate a world-class mentality with regards to maintenance.
He called for them to apply the ‘Three Rs’ – Refit, Repair and Renovate. Of immediate importance was to ensure the upkeep of the common areas such as lifts, escalators, public amenities and common areas as these will directly affect a potential client’s first impressions of the property.
He also said that having rent-free periods was an important promotional tool that will entice tenants. He advised against going down the slashing rents route as it will be very difficult to raise it again when economic conditions improve.
This is because lower rents will leave a smaller sum available for maintenance and other useful services. It will also affect a lower quality of tenant, which will make it difficult to attract the desired tenants later on.
Siva also said that many tenants these days prefer ‘all under one roof’ buildings, where every possible amenity is provided. He urged proprietors to include modern amenities such as gymnasiums, food courts, convenience stores and secure parking. These will help boost the property’s profile and having additional quality fittings, instead of just empty floor space, will help attract more tenants.
With additional office space entering the market at the end of 2016, it will continue to be a tenant’s market for the foreseeable future. Siva belives that the market will begin to level out in 2018/19 and will begin to climb upward in 2020/21.
His parting advice was for all potential investors to always seek advice from qualified real estate professionals and to continuously study the market to understand the way it ebbs and flows. And of course, to not to look for quick riches as property is a long-term play.
This article was first published in the iProperty.com Malaysia December 2016 Magazine. Get your copy from selected news stands or view the magazine online for free at www.iproperty.com.my/magazine. Better yet, order a discounted subscription by putting in your details in the form below!