KUALA LUMPUR: HwangDBS Vickers Research, which recently hosted the DBSV annual property talk by CB Richard Ellis (Malaysia), says demand for niche residential products still strong, but weak for high-end condos.

It said on Friday, March 12 that new office space coming in next two years should be absorbed, but potential overhang beyond 2012.

“Rental revisions soon at major malls; stronger retail spending as economy & tourism recovers. Valuations remain attractive (below historical mean, lagging regional). Prefer developers over investment asset owners. Top pick: S P Setia,” it said.

HDBSVR said housing demand-supply is almost at equilibrium, but long-term demand will be supported by a young population, urbanization, shrinking household size, and ample liquidity.

Demand for niche lifestyle products especially in Klang Valley and Penang, are expected to remain strong with rising affluence.

The biggest beneficiary is S P Setia which is the largest residential developer. Demand for high-end condos/serviced apartments may remain weak given large incoming supply, especially around KLCC and Mont’ Kiara.

Enquiries picked up recently, but prices and rentals are still 10%-20% below peak (yield: about 6%). Nevertheless, developers with strong branding/track record (e.g. E&O, DNP, Sunrise) should continue to see strong take-ups.

As for office space, rentals were flat in 2009 while vacancy at KL prime office space rose to 13% (2008: 7%). Recently completed office blocks in KL (G Tower, Icon Tun Razak) only managed abpout 40% occupancy at RM6 to RM6.50 psf. New supply coming in next two years should be absorbed (3m sf p.a.) as half had been pre-let.

Thereafter, new supply (more than four million sq ft p.a.), especially mega projects with unsubstantiated demand, might create an overhang.

As for retail market, sales fell 5% in 2009, albeit good given still weak consumer spending and the H1N1 outbreak. Sentiment picked up in 2H09 and should stay positive in 2010 as the economic outlook improves.

Retailers are still risk adverse, that is minimal expansion by established names but younger brands remain hungry. Occupancy was, and will, remain stable at 92% with minimal new supply.

“We expect rent reviews this year at Suria KLCC, Gardens, Pavillion and Sunway Pyramid – possible 10%-20% jump (typically over three years) and repositioning of target markets. Rentals should be driven by rising inflation and tourist numbers (spillover benefit of Singapore integrated resorts). Top beneficiaries: KLCC Property (Hold), IGB (Not Rated), and Sunway City (Hold),” it said.