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DTZ Property Times Kuala Lumpur, Q2 2011
1. Property Times
Kuala Lumpur Q2 2011
Active investment market
14 July 2011 • The Malaysian economy registered a slower growth of 4.6%
year-on-year (YOY) in Q1 2011 following a growth of 4.8% YOY
in Q4 2010. The economic growth in Q2 2011 could ease further
Contents with a lower level of exports and industrial production.
Executive summary 1
• Prime office rents moved upwards slightly in Q2 2011 but
Economic overview 2
Offices 3 continued to be under pressure with the anticipation of
Retail 4 substantial supply in the pipeline (Figure 1).
Residential 5
Investment 6 • The retail market continues to be active but the increase in
Key statistics 7 inflation could dampen consumer spending. Nevertheless, the
Definitions 8
Contacts 9
sector remains optimistic with forecasted retail sale growth of 7%
in Q2 2011 after registering growth of 5.1% in Q1 2011, 50%
lower than forecasted earlier.
Authors
• The residential sector is relatively quiet with selective new
Brian Koh
Executive Director launches but affordable housing is a recurring theme for the
Consulting & Research Government to tackle.
brian_koh@dtz.com.my
• The investment market enjoyed an active quarter driven by REIT
Halimah Mohamad deals with a focus on retail properties and commercial properties.
Manager
Consulting & Research
halimah_nor@dtz.com.my
Figure 1
Contacts Average prime office gross rents
RM per sq ft per month
Chua Chor Hoon 7
Head of SEA Research
chorhoon_chua@dtz.com.sg 6
Ong Choon Fah 5
Head of Consulting & Research,
4
SEA
choonfah_ong@dtz.com.sg 3
David Green-Morgan 2
Head of Asia Pacific Research
david.green-morgan@dtz.com 1
Tony McGough 0
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Global Head of Forecasting &
Strategy Research
tony.mcgough@dtz.com
Source: DTZ Research
Hans Vrensen
Global Head of Research
hans.vrensen@dtz.com
www.dtz.com 1
2. Economic overview
• The Malaysian economy registered a slower growth Figure 2
of 4.6% YOY in Q1 2011, after a 4.8% and 5.3%
GDP growth and unemployment rate
growth in Q4 and Q3 2010 respectively (Figure 2).
According to Bank Negara Malaysia (BNM), the
growth in Q1 2011 was driven by expansion in %
domestic demand while there was slower growth in 12
external demand. 10
8
• In Q1 2011, most sectors maintained their positive 6
growth with the services and manufacturing sectors 4
continuing to provide the impetus, expanding by 2
5.9% and 5.4% YOY respectively. The construction 0
sector expanded 3.8% on account of higher -2 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11
residential and non-residential activities. A smaller -4
decline of 0.3% was registered in the agriculture -6
sector, while the mining sector contracted 3.0% due -8
GDP growth (YOY) Unemployment rate
to lower production of crude oil.
Source: Department of Statistics Malaysia, Bank Negara Malaysia, DTZ Research
• Growth in Q2 2011 is likely to slow down with lower
export volume and a downturn in industrial
production. Most analysts are beginning to revise
downwards the GDP growth forecasts for the year
but BNM continued to maintain a 5-6% economic
growth forecast for 2011 whilst the Malaysian
Institute of Economic Research (MIER) has projected
a moderate growth of 5.2% for 2011 before rising
upward to 5.5% in 2012.
• Following the recent reduction in subsidies for petrol
and other essentials and hike in electricity tariff,
inflation is likely to increase this year although the
improving strength of the Ringgit will moderate prices
of imported goods. The inflation rate in Malaysia in
May 2011 was 3.3% YOY due to higher prices of
food and non-alcoholic beverages and transport.
• Foreign Direct Investment (FDI) for 2011 is
forecasted to exceed RM30bn compared to
RM29.3bn in 2010, with the first quarter of 2011
recording a total FDI of RM11bn.
• The Overnight Policy Rate (OPR) was raised by 25
basis points to 3% in May after remaining constant at
2.75% since August 2010. Bank Negara will continue
to pursue an accommodative monetary policy, with
an intention toward interest normalisation that is
appropriate and consistent with the assessment of
growth and inflation prospects.
• Given external uncertainties, growth will be driven
principally by the various domestic investments under
the Economic Transformation Programme (ETP).
www.dtz.com 2
3. Offices
• There appeared to be an uptick in market activities in Figure 3
the office sector, as a result of the various Entry Point
Office net absorption and vacancy rate
Projects under the ETP. In particular, we noted that
sq ft %
the oil and gas sector was very active in the leasing 1,200 15
(000s)
market. The implementation of the multi-billion 14
Ringgit MRT project has also impacted office space 1,000 13
12
demand in a positive way. 800 11
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• Net absorption is estimated to be about 862,000 sq ft 600 9
8
in Q2 2011, an increase of 69% QOQ (Figure 3). The
400 7
average prime rent also strengthened marginally to 6
about RM6.20 per sq ft, while overall occupancy rate 200 5
remained stable at around 87% (Figure 4). Major 4
0 3
leases signed in the review period included UOB for
Q1 09
Q2 09
Q3 09
Q4 09
Q1 10
Q2 10
Q3 10
Q4 10
Q1 11
Q2 11
multiple floors in Vista Tower.
• Total stock increased by about 1.1 million sq ft with Net absorption (LHS) Vacancy rate (RHS)
the completion of 4 buildings, namely Dijaya Plaza, Source: DTZ Research
Menara Worldwide, Menara Bank Islam and
Southgate. A similar quantum is expected to be Figure 4
completed in the second half of the year.
Average prime office gross rents
• A few of these new buildings have strong pre- RM per sq ft per month
commitment, in particular Menara Bank Islam which 7
is 36% pre-committed whilst Dijaya Plaza reported a 6
75% pre-commitment rate. It will be interesting to see
5
how Southgate will fare given its location away from
the main CBD area and surrounded by mainly 4
industrial uses. 3
2
• Capital value is stable, although prices of newly
launched strata-titled space can be up to RM1,400 1
per sq ft at KL Sentral, which appeared to be very 0
aggressive given a potential oversupply situation
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developing in the mid-term and upward trend in
interest rate. There is no new en-bloc transaction
Source: DTZ Research
noted for office buildings in the quarter, although Hap
Seng Consolidated is reported to be willing to
consider offers above RM1,000 per sq ft for their Figure 5
50% share in Menara Citibank.
Office development pipeline
• Overall, market sentiment is more positive. However
there is much uncertainty on the external front and a
slowdown in the global major economies will affect 2014
Malaysia, being an open economy, although it is 2013
trying hard to reduce this dependency and raise
2012
domestic investment to a higher level. Rents are
forecasted to trend lower up to 2013, as a substantial 2011 sq ft (000s)
amount of space is expected to be completed next
0 1000 2000 3000 4000 5000 6000 7000 8000
year (Figure 5).
Prime: GT Prime: CCA
Prime: decentralized area Secondary: GT
Secondary: decentralized area
Source: DTZ Research
www.dtz.com 3
4. Retail
• The Consumer Sentiment Index dipped marginally to Table 1
108.2 in Q2 2011 compared to 117.2 points in the
Upcoming retail centres in 2011
previous quarter, reflecting concerns over rising
prices and inflation resulting from the removal of Name of development Est NLA (sq ft) Location
government subsidies and a 7.2% hike in electricity
1 Shamelin 420,000 Cheras, KL
tariff. The rapid rise in the inflation rate will have an
adverse impact on household disposal income Festival Mall 450,000 Setapak
leading to declining purchasing power. Solaris 2 300,000 Mont’ Kiara
• The retail sales growth for the whole of 2011 is Suria KLCC (extension) 140,000 KLCC
expected to be maintained at 6% due to concerns Jalan Loke
over high oil prices, declining purchasing power and Viva Home 688,000
Yew
continuous surges in prices of goods and cost of
operation. The estimated retail sales growth for Q2 Ara
Citta Mall 424,000
2011 has been revised downward to 7% from the Damansara
12.6% projected earlier by the Malaysia Retailers Source: DTZ Research
Association (MRA), but it remained higher compared
to the 5.1% in Q1 2011. Table 2
• Promoting tourism through the abolishment of duties Existing retail stock (NLA)
for 300 selected items in Budget 2011 is making an QOQ
Q2 2011
impact on tourist shopping expenditure. For Q1 change
2011, tourist shopping expenditure increased by (sq ft) (%)
35%, exceeding the target of 29%.
Kuala Lumpur 21,493,519 5%
• The occupancy rate of retail centres remained stable Outside Kuala Lumpur 20,680,988 2%
and high at an average of 90% in the city and 87% Source: DTZ Research
outside of Kuala Lumpur.
Figure 6
• Viva Home, an integrated lifestyle, home and
entertainment mall occupying 688,000 sq ft of NLA Retail new supply (NLA)
and originally scheduled to be ready at the end of sq ft (000s)
2010, finally opened in May 2011 (Table 1). 3,500
3,000
• About 520,000 sq ft of new space was added in the
2,500
quarter with the existing stock staying at around
42.17 million in Klang Valley (Table 2 and Figure 6). 2,000
1,500
• The ETP has identified integrated health and
1,000
wellness resort developments to boost retail
expenditure through spa products and services and 500
tourism, with an investment of RM3bn and potential 0
11,000 jobs. It was enhanced with the official launch
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of the Golden Horses Health Sanctuary by the Health
Minister in February as reported in the sixth ETP
progress update held in June 2011. Completed supply New supply
Source: DTZ Research
• 15 ETP initiatives were unveiled in June, including
launching The Unified Malaysia Sale for the first time
from 15 June 2011 till 31 August 2011. With tourist
arrivals still growing, visitors spending will cushion
waning domestic consumption.
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5. Residential
• The quarter saw the completion of Phase 1 of Seni Figure 7
Mont Kiara, Kiara 3, Twins@Damansara Heights and
Future supply of prime condominiums in Kuala
three projects in U-Thant area which included
Lumpur
Gallery@U-Thant, 7@U-Thant and Identiti U-Thant.
• Another 2,847 units of condominiums are expected to units
7,000
be completed by the end of this year. Most of them
are outside the city centre (Figure 7). 6,000
5,000
• In the city centre, the expected completions in the
4,000
second half of 2011 include Crest@Sultan Ismail,
Katana II, Brunsfield Embassyview, The Pearl and an 3,000
unnamed project by Bandar Park at U-Thant (Table 2,000
3).
1,000
• KLCC area will see the launch of two more projects 0
by the end of this year. Both are by Naza TTDI Sdn 2011 2012 Post 2012
Bhd, one located at Platinum Park and the other City centre Outside city centre
along Jalan Tun Razak, next to the Singapore High Source: DTZ Research
Commission. A price indication of around RM1,600
per sq ft was reported. With ample supply of units in
Table 3
the area and being a tenant’s market, this new supply
would add downward pressure on rents. Upcoming high end condominiums in Kuala Lumpur
city centre in 2011
• Capital value increased marginally by 2% QOQ to an
Project Units
average of RM615 per sq ft vis-à-vis RM603 per sq ft
in the preceding quarter, with KLCC properties Crest@Sultan Ismail 278
averaging at RM907 per sq ft. Average rental value Katana II 40
remained stable at RM3.55 per sq ft per month
(Figure 8). Brunsfield Embassyview 283
The Pearl 177
• Demand for affordable apartments bearing a price
Bandar Park project 12
tag of between RM220,000 and RM300,000 per unit
is expected to be boosted with the introduction of the Source: DTZ Research
government’s new affordable housing scheme called
PR1MA. Its objective is to give lower middle income Figure 8
Malaysians an option to own a house and is targeted
at first-time house buyers with household income Rents and capital values of prime condominiums in
less than RM6,000 per month. Kuala Lumpur
700 RM per sq ft RM per sq ft per month 5
600
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400 3
300 2
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Q2 11
Capital values (LHS) Rents (RHS)
Source: DTZ Research
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6. Investment
• There was a strong increase in investment deals • There was also an unannounced deal by MMC
dominated by the sale of four retail malls in the third acquiring PJTC Block B in Petaling Jaya of 200,000
tier cities, and several smaller offices in the sq ft for owner occupation from Taiko for an
secondary locations outside of Kuala Lumpur. undisclosed sum. MMC is part of a consortium which
won the tender to manage the proposed RM54bn
• Total investment value is estimated at about MRT project.
RM946m, 32% lower than the previous quarter
(Figure 9). The malls involved are Ipoh Parade, • The other major news is the pending injection of
Seremban Parade, Klang Parade and East Coast Pavilion, an integrated development comprising a
Mall, involving 2 million sq ft. These transactions major prime retail mall of 1.3 million sq ft on Jalan
indicated a growing trend by foreign investors to Bukit Bintang, Kuala Lumpur and an office block of
explore assets beyond the primary cities of Kuala about 160,000 sq ft into a REIT.
Lumpur, Johor Bahru and Penang and increased
confidence in the retail prospects linked to domestic • Overall, there had been strong participation from both
household consumption in the smaller cities and domestic and foreign investors, in particular the local
towns. REITs which are supporting investment activities and
market liquidity. The recent increase in interest rate
• ARA Dragon Fund, an entity linked to Li Ka Shing of and tightening in money market liquidity have so far
Hong Kong bought a portfolio of three malls whilst not dampened investors’ sentiment, and this is
another Li Ka Shing-linked listed local entity, AM First positive for the market.
REIT, was the buyer of two mid-sized offices, Prima
9 and Prima 10, in Cyberjaya. The Prima offices were Figure 9
sold at a blended price of RM630 per sq ft (Table 4).
Total investment sales in Malaysia
• CapitaMalls Malaysia Trust, a retail REIT, purchased RM (000s)
the East Coast Mall at a price of RM310m, or RM702 8,000
per sq ft and with an entry yield of 6.7%. 7,000
6,000
• Other major retail transactions pending completion in 5,000
Q3 2011 include the related party transaction of The 4,000
Gardens Mall at Mid Valley for RM820m via a sale of
3,000
shares in the holding company, Mid Valley City
Gardens Sdn Bhd, and the successful bid at a public 2,000
auction for The Putra Place (which comprises a 1,000
mixed development of retail, office and hotel) by 0
Q1 08
Q2 08
Q3 08
Q4 08
Q1 09
Q2 09
Q3 09
Q4 09
Q1 10
Q2 10
Q3 10
Q4 10
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Q2 11
Sunway REIT at RM513.95m.
Source: DTZ Research
Table 4
Significant deals
Property Purchaser Vendor Price
East Coast Mall, Kuantan CapitalMalls Malaysia Trust Astral Realty Sdn Bhd RM310m
Amcorp Trade Centre, PJ AmCorp Properties Sdn Bhd Melawangi RM75m
Prima 9, Cyberjaya AM First REIT Prima Group RM72m
Prima 10, Cyberjaya AM First REIT Prima Group RM61m
Source: DTZ Research
www.dtz.com 6
7. Key statistics
Table 5
Markets
QOQ YOY
Q2 Q3 Q4 Q1 Q2 change change Directional
2010 2010 2010 2011 2011 outlook
(%) (%)
Office
Net absorption (000s sq ft) 414 790 426 509 862 69.4% 108.2% ◄►
Occupancy rate (%) 87.9 87.1 86.4 86.9 86.7 -0.2% -1.4% ◄►
New supply (000s sq ft) - 1,437 - 240 1,346 N/A N/A ▲
Prime rents (RM per sq ft per
6.00 5.98 5.97 6.12 6.20 1.31% 3.33% ◄►
month)
Residential (non-landed resale)
Average capital value of prime
552 600 599 603 614 1.82% 11.23% ◄►
condominiums (RM per sq ft)
Source: DTZ Research
Table 6
Leasing transactions
Address Size (sq ft) Tenant Sector
Vista Tower, KL - UOB Office
Cap Square, KL 15,000 Tradewinds Office
Menara Amcorp, PJ 3,000 Lembaga Totalisator Office
Vista Tower, KL 1,400 GECI Office
Source: DTZ Research
www.dtz.com 7
8. Definitions
Development pipeline
Comprises two elements:
1. Floorspace in the course of development,
defined as buildings being constructed or
comprehensively refurbished.
2. Schemes with the potential to be built in the
future, though having secured planning
permission/development certification.
Net absorption
The change in total occupied floorspace over a specified
period of time, either positive or negative.
New supply
Total floorspace which is ready for occupation either
now or within the next 6 months. Ready for occupation
means practical completion, where either the building
has been issued with an occupancy permit, where
required, or where only fit-out is lacking.
Prelet/pre-commit
A development leased or sold prior to completion.
Prime rent
The highest rent that could be achieved for a typical
building/unit of the highest quality and specification in
the best location to a tenant with a good (i.e. secure)
covenant.
(NB. This is a gross rent, including service charge or tax,
and is based on a standard lease, excluding exceptional
deals for that particular market.)
Stock
Total accommodation in the commercial and public
sectors both occupied and vacant.
Take-up
Floorspace acquired for occupation, including the
following:
1. offices let/sold to an eventual occupier;
2. developments pre-let/sold to an occupier;
3. owner occupier purchase of a freehold or long
leasehold.
(NB. This includes subleases.)
Occupancy rates
The percentage of total net lettable area/units occupied
with available stock.
www.dtz.com 8
9. Contacts
Consulting & Research
Brian Koh +60 (0)3 2161 7228 ext 800 brian_koh@dtz.com.my
Halimah Mohd Nor +60 (0)3 2161 7228 ext 814 halimah_nor@dtz.com.my
Markanah Mat Taib +60 (0)3 2161 7228 ext 815 markanah_taib@dtz.com.my
Global Corporate Services
Chua Wei Lin +60 (0)3 2161 7228 weilin_chua@dtz.com.sg
Yasmine Mohd Zamirdin +60 (0)3 2161 7228 ext 612 yasmine_zamirdin@dtz.com.my
Chintan Mithalwala +60 (0)3 2161 7228 ext 610 chintan_mithalwala@dtz.com.my
Investment
Brian Koh +60 (0)3 2161 7228 ext 800 brian_koh@dtz.com.my
Peter Chew Lye Sing +60 (0)3 2161 7228 ext 810 peter_chew@dtz.com.my
Sr Low Han Hoe +60 (0)3 2161 7228 ext 202 hanhoe_low@dtz.com.my
Tony DeCosta +60 (0)3 2161 7228 ext 811 tony_decosta@dtz.com.my
Property Management
T. Subramaniam +60 (0)3 2161 7228 ext 600 t_subramaniam@dtz.com.my
Mohd Azhan Che Mat +60 (0)3 2161 7228 ext 412 mohd_azhan@dtz.com.my
Residential
Eddy Wong +60 (0)3 2161 7228 ext 550 eddy_wong@dtz.com.my
Chong Yen Yee +60 (0)3 2161 7228 ext 551 yenyee_chong@dtz.com.my
Alex Loo Chon How +60 (0)3 2161 7228 ext 558 alex_loo@dtz.com.my
Retail
Ungku Suseelawati Ungku Omar +60 (0)3 2161 7228 ext 300 suseela@dtz.com.my
Joseph Cheah +60 (0)3 2161 7228 ext 321 joseph_cheah@dtz.com.my
Susan Yew +60 (0)3 2161 7228 ext 310 susan_yew@dtz.com.my
Valuation
Sr Low Han Hoe +60 (0)3 2161 7228 ext 202 hanhoe_low@dtz.com.my
Hanafi Abd Rahman +60 (0)3 2161 7227 ext 204 hanafi_rahman@dtz.com.my
www.dtz.com 9
