New Measures Required To Correct Demand-Supply Imbalance For KL Commercial Property Market, Finds Report

The third quarter of 2022 saw the national economy continuing its growth trajectory to record 14.2 per cent growth y-o-y in Gross Domestic Product (GDP). Growth was driven by robust performance in both domestic spending and export demand and higher capital expenditure. Overall, the Malaysian economy expanded by 9.3 per cent in the first three quarters of 2022.

Private final consumption rose 15.1 per cent supported, by Transport, Restaurants & hotels, and Recreation services & culture.

On the supply front, the services sector grew stronger at 16.7 per cent (Q2 2022: 12.0 per cent) driven by Wholesale & retail trade sub-sector (+24.4 per cent) and better performance across all other subsectors.

Nawawi Tie Leung Property Consultants cited these factors in their report titled ‘Cautious Optimism Amid Global Uncertainty’ specifically focussed on the property market in the greater Kuala Lumpur of which findings revealed that it’s expected to exceed projections based on full-year national economic growth.

The report also identified supporting factors within the economy which would buoy the projections.

The manufacturing sectors continued to strengthen with an expansion of 13.2 per cent (Q2 2022: 9.2 per cent), propelled by the Electrical and Electronics (E&E) cluster, which recorded double-digit growth at 17.3 per cent (Q2 2022: 15.5 per cent).

The construction sector also recorded double-digit growth of 15.3 per cent, given the resumption of activities supported by the improvement in the labour market.

Commodities-related sectors rebounded and turned positive during the same quarter. Mining and agriculture registered growths of 9.2 per cent and 1.2 per cent, respectively. The unemployment rate further improved to 3.7 per cent compared to 3.9 per cent recorded in prior quarter, while headline inflation during the third quarter rose to 4.5 per cent, while core inflation increased by 3.7 per cent. The increment was driven by continued improvement in demand amidst the high-cost environment.

The expected uptrend is also supported by the Business Conditions Index (BCI) and Consumer Sentiment Index (CSI) both improved, however, remained below the threshold optimism level of 100 points.

Market Outlook

With Bank Negara Malaysia (BNM) increasing its Overnight Policy Rate (OPR) to 2.75 per cent in November and the performance of the Ringgit which depreciated to 4.3850/4.3950 against the greenback in December last year, compared to 4.1690/4.1720 recorded on January 3, 2022, were factors which expressed caution towards investments.

But, in Q4 2022, the total investment sales increased by 398 per cent q-o-q and 699 per cent y-o-y respectively. The total investment sales for the whole of 2022 wereRM4.9 billion, denoting a strong possibility that property markets remain strong coupled by the trend where investments increased with activities jumping fourfold.

Commercial Property — Office And Retail

Across the whole year (2022), the completion of the new office space supply totalled up to 1.6 million sq ft NLA, lower than the 2.3 million sq ft completed in the previous year. This Fourth Quarter of 2022 saw the completion of the Embassy Pavilion corporate office tower and corporate office suites along Jalan Ampang, among others. All 176 corporate office suites with sizes ranging from 1,050 to 2,765 sq ft per unit were reported to be all sold out.

KL’s average occupancy dropped as some finance and technology corporates completed their relocations to the new buildings in TRX in the second half of the year, leaving their older buildings vacant. Other notable movements were mainly driven by flight-to-quality demand from the finance and retail sectors.

The demand from flexible working operators remained muted in this quarter. Colony Space Asia Sdn Bhd announced the opening of its 11,454 sq ft facility at Sunsuria Forum, Setia Alam.

In Q4, the prime office building rentals in KL Golden Triangle remained stable at RM6.82 per month. On the other hand, KL Sentral/Mid Valley recorded an increment to RM7.12 per sq ft per month, contributed by limited new supply and steady demand.

The rentals for secondary office buildings in KLGT improved slightly to RM4.87 per sq ft per month, from RM4.82 per sq ft per month.

The report stated that the office market will remain challenging with the additional office space of 7.0 million sq ft expected from 2023 to 2024, and the expected global recession might dampen demand.

“With the formation of the Unity Government, we expect the formulation of new policies to attract investors and revitalise the office market. We also expect more efforts by developers and building owners to incorporate ESG elements in their business strategies. With the government offering incentives to convert old office buildings into other uses, this effort might be able to correct the demand-supply imbalance in the market,” it added.

Overall, office space needs new measures to reactivate demand, the report cited.

In contrast to office space, Malaysia’s retail sales surged 96.0 per cent year-on-year in the third quarter (Q2 22: 62.5 per cent).

The strong performance during this quarter was due mainly to the low base effect a year ago, which contracted by 27.8 per cent due to the MCO and closure of most retailers.

As of Q4 2022, the retail stock increased by 0.5 million sq ft with the completion of Datum Jelatek Mall in Kuala Lumpur and Megah Rise Mall in Petaling Jaya. The total completion of the new supply in 2022 is 2.6 million sq ft.

With a net lettable area of 317,000 sq ft and a direct linkage to Jelatek LRT station, Datum Jelatek Mall was reported to have a committed occupancy rate of 70 per cent and aimed to achieve 95 per cent by end of 2023. As part of a mixed development, which includes Megah Rise Residensi, Megah Rise Mall (142,00 sq ft NLA) has Village Grocer and Michael’s Badminton Academy as the anchor tenants.

Notable new entrants include Taiwanese bookstore Eslite Spectrum, which takes up 70,000 sq ft of space at The Starhill, and Indonesia’s Kenangan Coffee, debuting at Suria KLCC.

Other major openings include the Chanel Shoe Boutique, Ralph Lauren, and Sacoor Blue at Pavilion KL as well as Issey Miyake and Hugo Boss at The Gardens Mall. In Petaling Jaya, Harvey Norman opened a 30,000 sq ft superstore at 1Utama Shopping Centre.

Food and beverage stores dominated the expansion plan in the retail market during the quarter under review. Some of the new outlets planned are Berjaya Food’s Starbucks Coffee (35-40 new outlets by June 2023), Loob’s Tealive (200 new stores by 2024), Farm Fresh’s Jomcha (275 new shops by 2025), and Taco Bell (another 22 restaurants by 2023).

This quarter also saw the aggressive expansion of TFP Retail Sdn Bhd (TFP), which operates Village Grocer and Ben’s Independent Grocer (BIG). In the Klang Valley, The Food Merchant grocery stores have opened four stores at Pavilion Embassy, Datum Jelatek, WCity OUG, and Raintree Rain Era. Another Village Grocer also opened at Megah Rise Mall, Petaling Jaya.

The third quarter saw the demolition of Plaza OUG, one of the oldest neighborhood malls in Kuala Lumpur. The owner, Overseas Union Garden Sdn Bhd, had announced several years ago that it had planned to redevelop the mall into a mixed-use development comprising a modern shopping mall, a hotel, and serviced apartments.

Given the strong performance, the report cited that in the third quarter, RGM projected sales to grow more than 30 per cent for 2022, with sales in the fourth quarter expected to grow by 6 per cent.

RGM also projected a retail growth rate for the full year 2023 to normalize at 3.5 per cent, with the main challenge being the rising cost of living.

Coupled with the continued global uncertainty, increments in inflation and interest rates are expected to reduce consumers’ disposable income and spending, moderating the growth in sales value and volume for the next year.

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