More office and residential properties, slow growth for retail sector

KUALA LUMPUR: A new supply in the residential segment with an average of 5,477 units per annum is predicted for the next three years, with continued downward pressure on rental values expected, especially in the city centre, according to real estate consultant DTZ Nawawi Tie Leung Property Consultants Sdn Bhd.

In its report on Jan 20, DTZ said Kuala Lumpur will see added supply of office and residential products as new projects enter the market in the fourth quarter of 2013.

However, the proposed price hikes will dampen retail confidence as consumer spending dwindles.

“It remains to be seen if capital values will be affected if speculative investors were to offload their units when they are completed,” said DTZ.

It said with recent cooling measures such as the increase in real property gains tax (RPGT), removal of the developer interest bearing scheme (DIBS), stricter bank lending guidelines, as well as new price thresholds for foreign ownership, the residential market is predicted to further soften and slow down in 2014.

Office space will continue to be in high supply as three new developments were completed in the last quarter of 2013, which added about 1.1 million sq ft of grade A office space to the existing stock.

Increasing competition for office tenants has not significantly affected rental values.

However, the pressure to secure higher occupancy in new buildings will continue, especially if the funding rate rises.

“This pressure is not likely to abate in the short to medium term and as such, the office market is forecast to remain challenging in 2014 and beyond,” DTZ said.

Meanwhile, for the retail segment, growth is expected to be slower this year, with a forecast of 6% due to potential challenges from recent government announcements such as price hikes for electricity and tolled roads, among others.

“The price hikes are expected to further erode consumer confidence and curb retail spending.

“With weakening consumer confidence, retail sales were reported to [be] slow in the last quarter of the year as various government subsidy rationalisation measures took a toll on consumer spending.

“It is expected that 2014 will be a challenging year for both retailers and consumers in view of the rising cost of living and lower purchasing power of Malaysian households,” said DTZ.

Nevertheless, the occupancy rate remains unaffected in the short term, coming in at a high of 93%, a significant quarter-on-quarter (q-o-q) improvement of 1.1 percentage points.

This was driven by the completion of a new mall and strong take-up of a refurbished mall in the city centre. Generally, prime malls in urban and suburban areas are still enjoying strong occupancy of 95% and above.

This article first appeared in The Edge Financial Daily, on January 24, 2014.

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