Logistics property to draw investment interest

PETALING JAYA (April 22): Institutional funds and REIT managers remain positive about investing in the logistics/industrial property sub-sector in Malaysia, according to Knight Frank Malaysia.

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Knight Frank Malaysia Executive Director of Capital Markets Allan Sim said with the current Covid-19 pandemic roiling the economy and impacting the local and international equities markets, institutional funds may place more focus on this alternative segment in a hope to diversify their investment and preserve the required rate of return.

“With developers generally not focusing on industrial properties, funds and REITs will turn to existing industrial assets with strong tenant profile and lease covenants as potential acquisition targets,” he said in a statement today.

On another note, he also expects to see more sale and leaseback transactions in the industrial property segment materialising soon.

“Manufacturers and industrial end-users are diligently looking into additional measures to generate better cash position on top of the traditional ways of expanding credit lines, in efforts to sustain their businesses.

“Hence, post MCO (Movement Control Order), many companies could potentially look into divesting the big impact items within their balance sheets – real estate. Sale and leaseback can help to improve cash balances, reduce debt levels and ensure zero disruption to the business at the same time,” Sim explained.

Besides raising funds for manufacturers and industrialists, sale and leaseback options could also satisfy the demand of funds and REITs looking for good long-term investments, he added.

In its Malaysia Commercial Real Estate Investment Sentiment Survey (CREISS) 2020, released today, the property consultancy found that with the exception of the healthcare sub-sector, over 50% of respondents expect capital values for all sub-sectors to remain stagnant in 2020.

The survey had gathered insights and preferences of developers, commercial lenders and fund/REIT managers in the commercial sector for 2020. The respondents were made up of representatives in the senior management levels of industry players. The survey was conducted in February 2020.

Close to 30% of respondents in the survey expected values of office and retail assets to decline in 2020. In terms of rental, some 60% of respondents expected rentals of retail space to fall in 2020 while for the office segment, 46% of them expected rentals to trend down. As for the hotel / leisure sub-sector, 50% of respondents expect the average room rate to remain flat in 2020, while 39% foresee a dip in average room rate.

“Even before the Covid-19 was declared a global pandemic in March, respondents have already expressed pessimism,” said the firm.

However, about 41% and 60% of the respondents expect to see increase in capital values for logistics/industrial and healthcare segments respectively while about 70% expect rents to hold firm in the logistics/industrial segment.

The logistics / industrial sub-sector continues to expand in Klang Valley, Penang and Johor supported by the growth of e-commerce which has elevated demand for additional warehousing space, said Knight Frank.

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