7 JULY, MALAYSIA – More than a year into Malaysia’s first lockdown on 18 March 2020, the country continues its uphill battle to contain the spread COVID-19 despite the kick-off of the National Immunisation Programme since end-February, 2021. The resurgence of COVID-19 cases has led to the country being placed under several movement control orders this year. Effective 3 July 2021, several localities in Kuala Lumpur and sub-districts in Selangor are under a 2 week enhanced movement control order (EMCO) due to the high number of daily infections in Klang Valley.
The prolonged strict containment measures continue to adversely impact economic and business activities, as well as daily lives. Sarkunan Subramaniam, Managing Director of Knight Frank Malaysia raises concern about the survival of non-essential services which continue to bear the brunt of the lockdowns.
The hospitality industry continues to bleed due to international travel bans, restrictions in interstate travel and cancellation of major events amongst other reasons. Similarly, the retail industry has also been badly impacted due to various phases of lockdowns and subdued consumer sentiment.
As more businesses close down and hotels cease operations, the country’s unemployment rate is expected to rise. Sarkunan hopes that the vaccination programme will continue to be ramped up as the country’s economic recovery hinges on its success to reduce the number of daily new infections and contain further outbreak.
Key players in the commercial property industry are optimistic on the logistics and healthcare sectors but remain cautious on the traditional retail and office segments as well as on the hotel / leisure industry. The severe disruptions to supply chains globally which revolutionised e-commerce services, continues to drive the logistics sector whilst the critical need for good medical and healthcare support amid the pandemic coupled with attractive tax incentives is expected to see growth in the healthcare sector.
Keith Ooi, Deputy Managing Director of Knight Frank Malaysia, said, “It is no surprise that logistics was the clear winner as the preferred sector to continue to do well in 2H2021. The logistics industry in Malaysia has been growing steadily in recent years due to higher e-commerce penetration rate. This, coupled with the structural shift towards omnichannel retailing, has led to an increase in demand for modern warehousing space to meet the surge in last mile delivery.
Prime logistics asset values are expected to rise further over the near term underpinned by strong growth in the e-commerce market and again, with interest rate staying low in the foreseeable future, yields are expected to remain at low levels, Keith added.
Industrial / Logistics
The survey respondents have strong convictions on the industrial / logistics sector which they opined should continue to perform well under current economic climate.
Allan Sim, Executive Director of Capital Markets, Knight Frank Malaysia, commented: “It is understandable that the industrial and logistics sectors are favoured by the respondents as they remain the few resilient property classes that are still up and running during this volatile time. Appropriately, these very same sectors are being voted by respondents to be leaders charting the journey of recovery for the commercial property market.”
“On this note, the survey also highlighted that the ecosystem for industrial and logistics is in unison as developers and fund / REIT managers’ appetite for investments into the industrial / logistics sector are harmoniously complemented by lenders whom are also expressing higher interest in funding these projects / assets”, Sim added.
Sim also commented: “When examining further, we noted that the market is perceiving the impact of MCOs to be more severe for manufacturers that are reliant on human workforce, as compared to logistics that are deemed to encounter less downside risks amidst lockdowns and may even flourish by way of e-commerce substituting general retail.”
“All in all, we concur with the respondents’ anticipation for an increase in rental and occupancy rates for the logistics sector. This will act as a strong support for the potential of increase in capital values of logistics assets and further reinforcing the standing of logistic assets class as a darling amongst the investors, fund managers and developers” Sim concluded.
More than 50% of respondents expect to see a spike in the capital values of healthcare (60%) and logistics (58%) assets. In the office and retail sub-sectors, about half of the respondents expect the capital values to hold while in industrial and institutional segments, the percentages of respondents are higher at 67% and 70% respectively. In the hotel / leisure sub-sector, 78% of respondents expect capital values to fall.
Healthcare
The survey revealed that the healthcare segment, particularly in Penang has captured the interest of developers and investors. As Malaysia is currently ranked among the world’s top health tourism destinations due to its affordable and high-quality medical treatment, Penang is one of the most preferred destinations for the majority of health tourists.
Mark Saw, Executive Director of Knight Frank Penang, said: “Medical tourism, previously being one of the major contributors to the Penang economy, has been badly affected due to the on-going pandemic and travel ban.
In January this year, the Penang State Government unveiled the joint-venture project between Penang Development Corporation (PDC) and iHeal Health Sdn Bhd to develop the Penang Medical and Digital Technology Hub on 295 acres of land at Bandar Cassia in Batu Kawan. This project will help to promote Penang as the Asean hub for international standard medical and digital technology.
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In addition, other notable upcoming healthcare institutions scheduled to make their debut in the state include the likes of Columbia Asia, Sunway Medical Centre, Penang Islamic Hospital, Georgetown
Specialist Hospital and they are expected to boost Penang’s medical tourism sector by offering quality healthcare services”, he added.
“With the resurgence of COVID-19 cases and reimplementation of MCOs in recent months, we believe the overall interest in other sectors are expected to continue to remain soft until the health crisis is brought fully under control”, said Keith.
This latest survey findings revealed that there are more factors negatively impacting investment in the commercial property sector in year 2021. The top three non-favourable factors (> 70% of respondents) were the third-wave of the novel coronavirus outbreak, the current state of economy/government policies and cancellation of the HSR project. The other unfavourable factors were compression of yield & lower returns and slow COVID-19 vaccine redeployment.
The Covid19 vaccination progress is critical to our economic recovery and requires much greater focus and as such there is a need to increase daily vaccinations and the number of people registering for the vaccine to get to herd immunity as quickly as possible”, Keith concluded.