Pent-up demand augurs well for Malaysia’s office market

KUALA LUMPUR: The Malaysian commercial property market, which ended on a high note in 2009 after a lull from mid-2008, can expect exciting times this year.

“We saw 28 major transactions worth more than RM3.5 billion in the second half of last year. Based on the enquiries we are receiving and market feedback, we have not seen anything yet!” said CB Richard Ellis (CBRE) (Malaysia) Sdn Bhd’s executive chairman Christopher Boyd at a press conference on Jan 27 held in conjunction with the change of name of Regroup Associates Sdn Bhd to CBRE (Malaysia).

Among those present were CBRE Asia chairman Willy Shee, CBRE Asia president and CEO Chris Brooke and CBRE (Malaysia) managing director Allan Soo.

Shee, who is based in Singapore, said CBRE’s move into Malaysia was driven by client demand for detailed information about the Malaysian property market. It finally found a partner in Regroup Associates to bring the CBRE name into the country.

Boyd said six to eight months before the onset of the global credit crunch in late-2008, a good investment building would have the interest of as many as 40 foreign pension funds and another 15 to 20 local institutions. However, these prospective investors disappeared as the credit turmoil unfolded. As a result, there is now a pent-up demand for good grade office space from foreign pension funds, some of which have not invested even a cent last year. So far, enquiries have come from Singapore, Hong Kong, South Korea, the Middle East and even Ireland.

Boyd sees Kuala Lumpur as an attractive location for investors due to the combination of modern infrastructure, quality facilities and comparatively cheap rentals. “Kuala Lumpur offers a consistent cost advantage which is not a flash in the pan, as growth in the supply of new buildings serves to smoothen any potential fluctuations in rental levels,” he shared.

To get an idea how markets around the region were faring when it came to sales of quality investment buildings, CBRE did a quick poll of yields one could expect. For Kuala Lumpur, the figure is a conservative 6%, central Hong Kong 3%, Singapore 4%, Hanoi at between 12% and 14%, Shanghai 5%, Beijing 6% and Sydney 6%. While some of these figures seem very encouraging, they vary according to interest rates in each country.

Boyd said it is a sellers’ market at the moment, but he also warned that there is a strong possibility of a double dip due to the economic problems experienced in the West. Although, he qualified, this may not happen to Asia but due to the interdependence of the region’s markets, a drop in the West inexplicably affects markets in Asia. “Developers should trend cautiously for the next six to nine months,” he advised.

While Kuala Lumpur’s office performance was affected by the global financial slowdown, it did not fare that badly compared with Hong Kong and Singapore,

Meanwhile, Soo said the recent round of foreign property ownership liberalisation in the Malaysian property market where foreign investors can purchase 100% of any property over RM500,000 without any bumiputra equity requirement will go down well with investors. Only those properties valued at RM20 million and above now require approval from the government. “This virtually opens up the market and I think once this measure gets across, the investors are going to renew their interest in Malaysian properties,” he shares.

Elaborating on this, Gregory Penn, CBRE’s senior managing director, investment properties of Greater China added: “Institutional and foreign capital in 2009 was cautious everywhere. A lot of the large funds did not invest in 2009, so you could have a fund with US$2 billion [RM6.86 billion] to US$3 billion in 2009 and not spent anything at all. But we are now finding that there is pent-up demand to invest those funds and in the last 10 to 12 weeks we’re seeing an enormous amount of capital wanting to get invested in 2010.”

A special report on the Malaysian office market prospect by CBRE Research, Asia stated that the Kuala Lumpur office market remained relatively resilient throughout 2009 and there was a noticeable improvement in sentiment in the second half of the year as the economic outlook improved.

Although 4.76 million sq ft of new supply from 14 office buildings were completed in 2009, vacancy rates were stable at 13%, said the report, as the bulk of this new supply was non-speculative and had been significantly pre-let prior to completion.

Vacancy and rentals began to level out in the fourth quarter of 2009 as leasing activity gradually began to pick up across the region.

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