As the country transitions into endemicity on April 1, the Malaysian property sector is expected to see a return to normalcy, with uneven recovery anticipated across the sub-sectors. All restrictions on business operating hours will be lifted, interstate travels will be allowed for all regardless of vaccination status, international borders will be reopened, and there will be no more limits on the number of people allowed in the workplace based on vaccination coverage.
Breathing room for retail threatened by incoming supply
The relaxation of restrictions is a much-welcomed relief for the battered retail sector, which has recorded a 27.8% decline in sales in the third quarter of 2021 (3Q2021) following prolonged lockdown measures.
While sales have picked up, the road ahead for retail rentals and occupancy levels remains uncertain and vulnerable to new coronavirus variants, such as the Omicron wave that has swept through Malaysia in March. While the government has assured no more “blanket” lockdowns will be imposed, retail recovery is closely tied to the number of Covid-19 cases. Besides the volatile retail prospects, the imminent glut of retail space supply may intensify pressure towards rental rates and occupancy levels in Klang Valley.
According to the Knight Frank Malaysia Real Estate Highlights (REH) for the second half of 2021 (2H2021), the completion of the Pavilion Bukit Jalil shopping mall brings the cumulative supply of retail space in Klang Valley to circa 64.86 million sq ft as of 2H2021. Another ten shopping centres or supporting retail components – with a collective retail space of circa 6.62 million sq ft – are scheduled for completion by 1H2022.
Looking north, Penang also saw a slight contraction in shopping mall occupancy rate, according to the National Property Information Centre (NAPIC). As of 3Q2021, the 109 shopping malls in Penang recorded a lower occupancy rate at 71.2%, compared to 72.9% a year prior. In George Town, the downward slide is more apparent – the occupancy rate was 76.9% in 3Q2021 compared to 81.9% in 3Q2020. Nonetheless, the opening of major grocery chains, including Village Grocer, Lotus’s (previously known as Tesco), and popular Korean convenience store CU Mart in Penang may spark fresh buzz for the retail landscape.
Despite the cloudy forecast, a thread of hope remains. The MIER Consumer Sentiments Index recorded 101.7 points in 3Q2021, the highest in eight years. This means consumers are confident about better income and employment in 2022.
Cautious optimism for the residential property market
The post-pandemic optimism for income and spending was reflected in the housing market in Klang Valley and Penang. In Kuala Lumpur, the volume of transactions of high-rise residential properties (including serviced apartments) soared 25.5% on the quarter in 3Q2021. However, the corresponding value of transactions was lower, implying a bigger appetite for lower-priced and affordable housing units during that period.
“During the review period
in 2021, there was only one substantial completion in Kuala Lumpur’s high-end condominium market, Ascott Residence, with 199 units. This brings the cumulative supply in Kuala Lumpur to 66,128 units at the end of last year,” says Sarkunan Subramaniam, the Managing Director of Knight Frank Malaysia.
More units are up and coming. According to Knight Frank, about 6,791 high-end condominium or residential units (16 schemes) are scheduled for completion by 1H2022.
In Penang, the residential sub-sector has posed a higher volume and value of property transactions as of 3Q2021, which is expected to continue. According to Mark Saw, Executive Director of Knight Frank Penang, several key factors drive such optimism. Firstly, the Penang State Government has extended the Penang Home Ownership Campaign (HOC) to the end of June 2022. Secondly, affordable home projects have been greenlit in various strategic locations. Additionally, it is now mandatory for fibre optic telecommunication infrastructure to be installed for all new developments in the state.
Overall, Knight Frank Malaysia remains cautiously optimistic for the residential property market in early 2022,
which has received various property-related incentives and initiatives under multiple stimulus packages.
“The abolishment of the Real Property Gains Tax (RPGT) for property disposals in
the sixth and subsequent years of ownership is long-awaited. This augurs well, especially for long-term property owners who wish to dispose of their existing properties for purposes of an upgrade as well as for empty nesters looking to downsize. The tax penalty exemption
is expected to boost activity, especially in the secondary market,” says Keith Ooi, Deputy Managing Director of Knight Frank Malaysia.
Office market sees recovery amidst co-working gains
As hybrid work and work-from-home arrangements become the norm in the post-pandemic reality, the co-working market’s growth spurt is expected to persist. Co-working spaces allow employers flexibility while evaluating the need to scale up or scale down their workforce and space needed, depending on their business trajectory and market condition.
For office leasing, signs of life are returning as well. In the last half of 2021, Knight Frank Malaysia observed active enquiries and a gradual recovery of the office market.
The momentum is expected to continue in 2022, according to Teh Young Khean, Executive Director of Corporate Services at Knight Frank Malaysia. A few multinational companies are even taking advantage of lower or competitive rentals to move into high-quality CBD office spaces.
Nonetheless, the office leasing market in Kuala Lumpur city will remain tenant-led in 2022. This is because supply continues to outstrip demand. Teh points out that by the end of 2022, around 9.06 million square feet of office space across Klang Valley are scheduled for completion, with Kuala Lumpur city contributing more than half – 5.45 million square feet – of this new stock.
The outlook is brighter in Penang. Knight Frank Malaysia forecast that the state will see stable rents and occupancy rates due to the supply crunch of better-grade office spaces. Average occupancy rates for the Penang Island and the mainland is at circa 85% and 57%, respectively, according to NAPIC.
To entice tenants into their buildings, Teh notes, landlords are expected to be more competitive in providing incentives while also upgrading their facilities to enhance health and safety amid the Covid-19 threats, including improving the quality of their indoor environment.
“Buildings under construction that will enter the market are expected to bring more options to occupiers, especially those seeking to upgrade from their current buildings to newer and better buildings with higher specification,” he says.
Incoming tourists a mixed blessing for the hospitality market
On a sunnier note, tourism in Malaysia is seeing a rebound. Domestic travels have resumed since the relaxation of interstate crossing in the last quarter of 2021. In April 2022, the reopening of borders to receive international travellers is set to speed up the recovery of the tourism sector. The Vaccinated Travel Lane (VTL) between Malaysia and Singapore, which allows quarantine-free travel between the two countries, is another shot in the arm.
“Our discussions with hotel owners have indicated a dramatic improvement in occupancies. Some smaller hotels see weekday occupancies picking up to 60 to 70% and 100% on weekends, supported mainly by domestic staycation business. Average room rates have also shown improvements but have not reached their pre-Covid levels,” reveals James Buckley, Executive Director of Investment at Knight Frank Malaysia.
Buckley adds that Langkawi is a bright spot for the Malaysian hospitality market. This is because of its relatively low levels of new supply in hotels, making it less competitive than other hotel markets in Malaysia. He anticipates a sharp recovery in occupancy and average room rates in the four to five-star market.
But this is no time for the hotel industry to rest easy. The sudden improvement in occupancies also brings a staff shortage issue, notes Buckley, which may raise salaries as hotels compete for employees to cope with increased demand. Penang alone has reportedly seen a layoff of about 4,800 hotel staff, many of whom left the industry due to its uncertain prospects amid the pandemic.
“The International Air Transport Association is forecasting global passenger numbers to recover to 88% of pre-Covid-19 numbers in 2022, surpassing 105% in 2023,” Buckley says. “There is plenty of pent-up demand from people worldwide to travel again, after many months of being stuck in their homes. We need to make sure they choose Malaysia, whether domestic travellers or international visitors, and whether they are seeking a spectacular holiday or looking to do business.”
Knight Frank, a leading independent global property consultancy, has 125 years of experience in offering high- quality professional advice and solutions across a comprehensive portfolio of property services. To learn more about how Knight Frank Malaysia can lend an insightful edge to your property investment strategies, please visit http://www.knightfrank.com.my
