Let’s meet John.

John is a property investor. A few years ago, he bought an apartment as his first investment property. Ever since, he never looked back and accumulated himself a sizeable portfolio of residential properties worth millions today.

Now, he is getting serious. John is making a paradigm shift as he intends to move from small apartment deals to big commercial deals. He is imagining himself to be winning the game of Monopoly in real life where his goal is to buy himself a ‘Red Hotel’ after acquiring ‘4 Green Houses’.

If you are reading this, perhaps, you are in a similar position with John and would like to know the current market situation before making your significant leap into commercial deals. In this article, I’ll share insights and facts from NAPIC to discover trends so that you can capitalise on them. Hence, here are my seven observations of the commercial properties market in Greater Kuala Lumpur for 2018.

 

#1: High Loan Rejections for Non-Residential Properties

Since 2013, there is a reduction in both loan application and approval from banks on the purchase of non-residential properties in Malaysia. The amount of loan applications has dropped from RM 59.2 billion in H1 2013 to RM 42.1 billion in H1 2017. Meanwhile, the amount of loan approvals has fallen from RM 25.5 billion in H1 2013 to RM 14.2 billion in H1 2017. The approval ratio has dropped from 43.1% in H1 2013 to 33.9% in H1 2017. Thus, this indicates that the commercial property market in Malaysia has slowed down over the last five years.

 

Figures in RM Million

Period Loan Applications Loan Approvals Approval Ratio
H1 2013 59,194.5 25,497.9 43.1%
H1 2014 51,468.2 24,642.4 47.9%
H1 2015 49,368.5 21,720.9 44.0%
H1 2016 39,478.6 15,569.6 39.4%
H1 2017 42,061.2 14,240.1 33.9%

Source: Bank Negara Malaysia

 

#2: Lower Office Occupancies in Kuala Lumpur

In 2016, the occupancy rate of office buildings in Kuala Lumpur was 77.9%, a decline from 83.2% in 2014. This is due to substantial hikes in office supplies despite flattish demand for them. Evidently, the total supply of office spaces has increased by 6.9%, up from 8.1 million sq. m. in 2014 to 8.7 million sq. m. in 2016. Meanwhile, the occupancy of these office spaces maintained at 6.7 – 6.8 million sq. m. throughout the 3-year period. The slowdown in office take-ups is attributed to a slowdown in the oil & gas sector which was in line with depressed crude oil prices since June 2014. It has placed pressure on rental rates for office spaces in Kuala Lumpur.

 

Figures in (‘000 sq. m.)

  Period 2014 2015 2016
  Total Supply 8,097.6 8,282.7 8,657.6
  Total Occupancy 6,739.9 6,722.6 6,747.2
  Occupancy Rate 83.2% 81.2% 77.9%

Source: NAPIC

 

#3: Office Glut to Persist in Kuala Lumpur

Looking ahead, there are several major developments which will contribute to the higher supply of office spaces in Kuala Lumpur. For example, they include the Tun Razak Exchange (TRX), Bandar Malaysia, the OSK office building, the Merdeka PNB 118, and Bukit Bintang City Centre respectively. So, what about demand? From various media, I’ve discovered that leasing activities for office spaces remain challenging in 2017 despite rent-free period and several incentives offered by landlords to attract prospective tenants. Suffice to say, due to rising supply and sluggish demand, the office market in the capital is expected to remain challenging in the immediate future.

 

#4: Office Demand is Shifting to Matured Suburbs in Selangor

In contrast, the occupancy rate of office buildings in Selangor was stable at 75% – 76% over the last three years. In fact, some areas in Selangor are enjoying over 80% in occupancy rates. These include Petaling Jaya, Subang Jaya, and Shah Alam. From NAPIC, the total supply of office spaces in Selangor has increased by 11.3%, up from 3.0 million sq. m. in 2014 to 3.4 million sq. m. in 2016. Meanwhile, the occupancy of these office spaces has increased by 10%, up from 2.3 million sq. m. in 2014 to 2.6 million sq. m. in 2016.

Thus, there is a trend where office demand is shifting towards areas outside Kuala Lumpur as rents are cheaper, and their locations are close to amenities and are easily accessible via major highways and public transportations.

 

Figures in (‘000 sq. m.)

  Period 2014 2015 2016
  Total Supply 3,048.8 3,306.3 3,394.4
  Total Occupancy 2,329.7 2,501.9 2,561.8
  Occupancy Rate 76.4 75.7 75.5

Source: NAPIC

 

#5: Co-Working Spaces: A Game-Changer in the Office Industry?

Ten years ago, the concept of co-working spaces was non-existent in Malaysia. An office is merely a place of work and business. Today, the story is different. There is an evolution taking place on what an office should be and how workspaces are built and designed in present times.

Gone are the days where offices are cubical, dull and uninspiring. Imagine. What if you get to work in a Google-theme office where you can sit wherever you like to work, take a nap in a sleeping pod, have a round of FIFA 18 with your colleagues in a game room, workout in a mini-gym and have a nice bath in a shower room? Is this a dream?

Nope. It is now a reality of what an office is like for many freelancers, agents, small business owners and self-employed in this country. The fees are flexible with packages varying according to your business needs. Thus, it saves costs as tenants do not need to renovate offices and would just pay for whatever they need.

Will this replace the conventional type of offices? Personally, I don’t think so as more prominent establishments want to maintain their privacy as they operate their businesses. But as more work functions are becoming digitised, I believe, there will be more co-working spaces to be set up, thus, will coexist with the traditional type of offices in the immediate future.

 

#6: Retail is Major in Subang Jaya / Sunway

In Q1 2017, there are 11.8 million sq. ft. of retail spaces in Petaling Jaya where the overall occupancy rate is 83%. From NAPIC, I’ve learnt the occupancy in Subang Jaya / Sunway areas have grown by 12.8%, up from 3.9 million sq. ft. in Q1 2015 to 4.4 million sq. ft. in Q1 2017.

Meanwhile, the occupancy rate in Petaling Jaya has declined by 6.1%, down from 2.1 million sq. ft. to 2.0 million sq. ft. over the last two years. Moving ahead, there is only one future supply of shopping mall in Subang Jaya over the next three years. It is known as the SJCC. With a healthy and growing catchment of middle-to-high income population, I opine that retail in Subang Jaya / Sunway will continue to be healthy in the immediate future.

 

Figures in (‘000 sq. ft.)

  Area Sunway Petaling
  Period Occupancy Rate (%) Occupancy Rate (%)
  Q1 2015 3,917.2 91% 2,145.9 68%
  Q1 2016 4,188.8 88% 2,035.4 75%
  Q1 2017 4,417.8 87% 2,015.8 74%

Source: NAPIC

 

#7: Lifestyle Malls: More Than Just a Shopping Destination

Hold on. What about online shopping? Wouldn’t it hurt the retail industry? Undeniably, e-Commerce is booming, and we are shopping online more than before. With that said, let me ask: ‘When is the last time you visited a shopping mall?’ I believe, for most of us, it is not too long ago even if you are not there to buy anything.

Why? It is because retail malls today are becoming more lifestyle-oriented. Besides grocery shopping, we dine, workout, meet people and catch a movie in a shopping mall. Perhaps, as you read this, you have several places in mind where you frequently hangout such as Sunway Pyramid, MidValley and One Utama.

But, it can be a hassle to travel to these places frequently due to jam and difficulties to secure a parking spot. Thus, there are demands for smaller lifestyle malls where the local residents of a smaller area can visit regularly. As I write, it is now a trend for developers to build lifestyle malls over shop-lots as lifestyle malls have more perceived value.

Are You Ready to Make the Big Leap?

If you are, you may start to look at commercial deals to boost your real estate portfolio to greater heights. After all, you may need ‘Big Deals’ to make ‘Big Money’.

Here, you may assess a unit at Sekitar26 Enterprise, a commercial project of Paramount Property. It is intended to be a lifestyle street mall which is easily accessible via six major highways: KESAS, LKSA, Elite, LDP, NPE, and the Federal Highway. If you are keen to inquire more about Sekitar26 Enterprise, please kindly sign-up the interest form below:

This article is sponsored by Paramount Property, an award-winning developer with more than 35 years of proven track record in the property development industry in Malaysia. Some of their other notable projects include Paramount Utropolis in Glenmarie, Greenwoods in Salak Perdana, Kemuning Utama in Shah Alam, and Sejati Residences in Cyberjaya.


KCLau
KCLau

Personal finance author and trainer

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