Malaysia - Commercial Properties & REITs

[winston]

Influx of office space in Klang Valley worsens oversupply situation

KUALA LUMPUR: An influx of office space in the Klang Valley is putting a downward pressure on yields.

Property consultants said the entry of more office space was making the oversupply situation worse.

However, they said the situation could be remedied should the economy perform better, thus keeping demand afloat.

“In certain areas, yields will be pressured downward because of the glut situation. But this is also highly dependent on the location of the offices. Those located in prime areas will have less chance of coming under yield pressure,” DTZ Debenham Tie Lung executive director Brian Koh told StarBiz.

Khong & Jaafar managing director Elvin Fernandez said that the slightly higher vacancies this time around was “not too abnormal a situation”.

“The thing about property cycle is that there can be a glut today but this oversupply condition can be offset if demand returns. I do not view it as being serious,

“However, there could be a lot more supply that would flood the office space sector in the medium to long term,” he said.

There were 20 million sq ft of vacant space in the Klang Valley, 22.5 million sq ft of office space under construction and 25 million sq ft which had been approved for construction.

The Government recently earmarked several areas for commercial development such as the KL International Financial District in Jalan Tun Razak, the 100-storey Warisan Merdeka, the Sungai Besi military airport and the Rubber Research Institute land in Sungai Buloh which are expected to come onstream within the next 10 years.

Meanwhile, a report by CB Richard Ellis released earlier this month revealed that office yields in Kuala Lumpur prime area had been flat from 2005 until 2011, ranging from a low of 6.25% to a high of 6.75% (see chart).

The report also showed the office space vacancy rate in the Klang Valley was under 13% on an average basis, which consultants said could rise once new space came in with the completion of several mega projects.

“With all the large-scale development projects coming in, we are looking at a potential oversupply situation but if the economy does exceptionally well despite the problems in the eurozone, this problem would ebb,” said Koh.

Vacancies had risen during the 2008 global financial crisis in prime office spaces and rental rates had been on a slight decline.

The prevalent trend among corporates was to move their bases away from the city centre into newer office buildings within other established suburbs such as Petaling Jaya and Klang as many of the workers lived in these suburbs.

“After the My Rail Transit has been completed, office development would focus back to the city centre as long as they are affordable and corporates can make a decent profit even after paying off these leases. I expect this trend to reverse and that Kuala Lumpur will remain at the primacy of development in the Klang Valley,” Fernandez said.

http://www.starproperty.my/PropertyScen ... /17056/0/0

[winston]

Big rise in office space supply By THEAN LEE CHENG

It has surpassed 100 million sq ft in Klang Valley but situation remains manageable

KUALA LUMPUR: The supply of office space in the Klang Valley has surpassed 100 million sq ft, making it the largest stock among the neighbouring South-East Asian metropolitan centres, according to property consultants at Jones Lang Wootton (JLW).

Senior vice-president and head of research David Jarnell said the situation remained manageable where supply of office property was concerned but that there could be consolidation of rental levels for the rest of the year.

“There will not be a drastic re-adjustment of rentals although some landlords are offering incentives to prospective tenants in the form of longer rent-free periods while some are not. With the large amount of supply, tenants have a wide range of choices,” he said.

JLW defines office stock as purpose-built, self-contained buildings which are generally five storeys and above.

Jarnell said that in South-East Asia, greater Bangkok had the second-highest office stock, totalling 87.85 million sq ft, followed by the Special Capital Region of Jakarta with 65.66 million sq ft.

Singapore, meanwhile, had an office stock slightly less than Jakarta at 64.01 million sq ft.

JLW executive director Malathi Thevendran said the annual supply delivered into the market in 2012 was the second largest (since the turn of the millennium) after 2009. A total of 6.74 million sq ft came into the market last year compared with 7.26 million sq ft in 2009.

The Bangsar/Pantai locality saw the highest growth supply, with a compounded annual growth rate of 29% (1998 to 2012), primarily contributed by the continuing KL Sentral development. The Bangsar/Pantai locality had a total office supply of 11.52 million sq ft as at end-2012.

Another 2.85 million sq ft would be added to the locality this year. The contributors include Menara CIMB (609,000 sq ft), where JLW is the managing agent, and 1 Sentrum (440,000 sq ft), where JLW is the exclusive leasing agent.

Jarnell said the recent trend of strong supply growth came about as a result of the strong and sustainable economic expansion, a growing services sector, good demand for corporate office space and wider-reaching infrastructure and public transportation.

According to Malathi, the trend in supply has been no different than in the 1990s when the gross domestic product was at 7.3% to 9.7% from 1989 to 1997, resulting in high levels of office construction, which peaked in 1998 when the annual supply was at 8.28 million sq ft.

Over the next three years, the Klang Valley development pipeline would comprise a substantial 18 million sq ft of office space.

Jarnell reckoned that better monitoring of developers' intentions by a regulatory body to govern and direct future supply would help ease the growing competition.

Said Malathi, “Developers of office buildings should be fully aware of what they could be up against and act prudently at the master planning stage, particularly the large-scale projects which would need to be phased over many years before they are fully built.”

Intrinsically, assessing the demand drivers is one of the key factors in ensuring sustainable occupancy rates.

http://biz.thestar.com.my/news/story.as ... 0Cyberjaya

[winston]

Too much retail space? by Thean Lee Cheng

Klang Valley has 59 million sq ft but some small towns have only a single mall.

THERE are a few issues facing shopping mall space in the Klang Valley today. The first is the amount of space, the second is retail spending which has a direct effect on rental and yield.

The Klang Valley, which includes Selangor and Putrajaya, has a total of 59 million sq ft of mall space, according to statistics from the National Property Information Centre (Napic).

That is equivalent to 51 Suria KLCC malls, which has 1.14 million sq ft of net lettable area. Napic includes arcades and older buildings in the outskirts as shopping mall space.

http://www.thestar.com.my/Business/Busi ... e-mal.aspx

[winston]

‘Pudu regeneration to cost over RM5.5b’

KUALA LUMPUR: The Bukit Bintang City Centre (BBCC) project here will cost more than RM5.5 billion and project owner UDA Holdings Bhd is looking for a financially-sound developer with a good track record to help it develop the site, say sources.

BBCC will be developed on a 7.85ha site that once housed the 101-year-old Pudu Jail, which was closed in 1996.

UDA may reveal its joint-venture partner at a media briefing today, albeit rumours that Eco World Development Group Bhd, Malaysian Resources Corp Bhd and Naza Group are among a few companies that have been shortlisted to be the preferred partner.

Government-owned UDA plans to convert the land into an iconic development, which will comprise more than five residential and commercial towers, a hotel, a mall and a retail strip.

It is also expected to have a transport hub, complementing Pudu Sentral (formerly Puduraya Terminal), which is operated by UDA.

Sources said the gross development value for BBCC is expected to be between RM8 billion and RM10 billion and the project will take around 10 years to complete.

According to a source, the Finance Ministry will kick-start the project with a small funding.

A news portal report recently tipped Eco World to win the Pudu Jail redevelopment deal.

Quoting a source from Eco World, the portal said the company is entering into a 70:30 joint venture with UDA to develop the site.

Eco World chief executive officer Datuk Chang Khim Wah was overseas and was unable to comment.

“This (BBCC) is a huge development... UDA wants a developer who is able to sell the project to both local and foreign buyers. For the office towers, they are looking at en bloc deals and for the mall, we can expect an international operator,” a property specialist said.

He said this was the right time to start the project with the ongoing infrastructure developments in Kuala Lumpur, such as the mass rapid and light rail transit lines.

The site has been abandoned for the past few years despite being made an Economic Transformation Programme project.

UDA had called for a request for proposal to develop BBCC last year.

The company held a concept briefing on September 23, which was attended by 24 developers.

Five developers, including one from Singapore, were reported to have submitted proposals for the redevelopment. Sharen Kaur


Source: NST

[winston]

PKNS building 65-storey tower in PJ Sentral after long court battle mmby sharidan m. ali

SHAH ALAM: Selangor State Development Corp (PKNS) is looking forward to build a 65-storey tower that is slated to be the tallest building in Petaling Jaya, with a gross development value of RM800mil in the much-talked about RM3bil PJ Sentral development.

After more than eights months of court battle, PKNS reached an out-of-court settlement with Malaysian Resources Corp Bhd (MRCB) and Nusa Gapurna Development Sdn Bhd two weeks ago, over the sale of its 30% stake in PJ Sentral Development Sdn Bhd.

This is after the High Court had dismissed PKNS’ suit against Nusa Gapurna and MRCB for alleged breach of shareholders agreement over the sale of its 30% stake in the company.

The remaining 70% stake in PJ Sentral is held by Nusa Gapurna and it is being injected into MRCB as part of an extensive corporate exercise which was proposed more than a year ago.

Under the exercise, MRCB acquired all of Nusa Gapurna’s development land, including its PJ Sentral project, in return for shares and cash.

This resulted in Nusa Gapurna emerging as a shareholder and its owner, Tan Sri Salim Fateh Din, helming MRCB as its group managing director.

PKNS contended that it was not getting a fair deal for its 30% in PJ Sentral and took the matter to court.

PKNS acting general manager Azlan Md Alifiah said after losing the court battle that the settlement was the best PKNS could get out of the current situation.

“Ultimately, you can’t win everything. If we could turn back time, of course we would not have inked the joint-venture agreement and develop the whole 10-acre parcel on our own,” he told StarBiz.

“But, now we are excited to build our own towers and to get at least a slice of that land back and retain our presence in Petaling Jaya as our original headquarters was located there. The state wants the building to be iconic and we will definitely deliver that.”

In the out-of-court settlement, MRCB will pay RM85.3mil in cash to PKNS for its 30% stake in PJ Sentral.

In return, PKNS will pay PJ Sentral RM91.1mil for the rights to build and own the tower within the development after MRCB had completed all the basic infrastructure and piling works.

Azlan said PKNS would start construction of the building after MRCB had completed all the basic infrastructure and piling.

“MRCB has two years to complete that and we are given five years to develop our three towers. We will occupy the tallest one, sell and rent out the remaining two towers,” he said.

Azlan said PKNS had made some modification of the tower development to suit its specifications since the development order was earlier approved.

“The buildings are poised to be an efficient and environmental-friendly property with Green Building Index (GBI) gold and Leadership in Energy and Environmental Design (LEED) certification.

“There will also be a podium block with some retail spaces,” he said.

Azlan explained that the construction of the towers would be done in an open tender basis and MRCB could put in its bid if it was interested.

Burying this dark episode behind, Azlan said PKNS was now not only focusing to sell property but was also looking at acquiring some more properties to be injected to its property management subsidiary, PKNS Real Estate Corp, that had recently completed the process of transfer of some PKNS assets into its portfolio.

“This is part of our efforts to evolve into a more sustainable business environment with recurring income from rental and lease.

““I do not deny the fact that, five years down the road, we might go into real estate investment trust,” he said.

Source: The Star

[winston]

Mara To Develop RM1.3b ‘Edu-Biz Park

KUALA LUMPUR: Majlis Amanah Rakyat (Mara) will develop an education and entrepreneurship area called the “Edu-Biz Park” in Bukit Jalil, costing RM1.3 billion, in the near future.

Rural and Regional Development Minister Datuk Seri Mohd Shafie Apdal said the project would further boost Mara as a pioneer in education and entrepreneurship in the country when it combines both elements in one place.

“Mara has signed an agreement with Technology Park Malaysia for a large area...it (plan) is already in the pipeline,” he said at a press conference after opening the Umno Youth Tuition Programme organised jointly with the Mara Education Foundation (YPM), here, today.

It is understood that the development would be on a nine-hectare piece of land. Also present at the ceremony were Umno Youth head Khairy Jamaluddin, who is also Youth and Sports Minister, Mara director-general Datuk Ibrahim Ahmad and YPM chairman Datuk Yussoff Dohab.

Source: Bernama

[winston]

Ten reasons why you should invest in Iskandar by daniele gambero

Source: The Star

http://www.thestar.com.my/Business/Busi ... -Iskandar/

[winston]

Stable rental rates for malls BY EUGENE MAHALINGAM

RENTAL rates at shopping complexes within the Klang Valley are expected to remain stable for the remainder of 2014, as the market is anticipated to see healthy growth in retail space this year.

According to property consultant CH Williams Talhar & Wong Sdn Bhd (WTW) in its retail sector report on the Klang Valley, some 4.88 million sq ft of net lettable area of space is expected to come in later this year.

The future supply will be from Quill City Mall (formerly Vision City), Capsquare Mall, Sunway Putra Mall (formerly The Mall), The Atria Shopping Mall, Sunway Velocity Mall, Sunway Pyramid Phase 3, M Square Shopping Mall, IOI City Mall and D’Pulze.

“The general market is anticipated to observe a healthy growth with spaces within the newly completed malls slowly to be filled up, as well as most upcoming retail centres in 2014 expected to be completed only in the second half of 2014. Rentals, on the other hand, are also expected to remain stable,” says WTW.

Despite the festive season celebrations in the first quarter of 2014, the period registered slower sales at 4.8% as compared with a 7.5% growth for the same period in 2013.

Citing the Malaysia Retail Industry Report, WTW noted that despite the festive season celebrations in the first quarter of 2014, the period registered slower sales at 4.8% as compared with a 7.5% growth for the same period in 2013.

“Nevertheless, with the vision of better incomes, higher employment rate and moderate inflationary as expected and reported by the Malaysian Institute of Economic Research (Mier), consumers are expected to indulge in more spending, especially with the continuously strong domestic market.

“Concerns were over higher growth in quit rent and assessment expenses, coupled with the increase in electricity tariff and renewable energy surcharge resulted, however, in higher property operating expenses, outpacing that of revenue,” WTW says.

According to Mier’s retail trade survey report, the Hari Raya celebration was expected to drive up retail sales in the third quarter of the year.

It, however, pointed out that the increase in the overnight policy rate (OPR) could affect retail sales of bigger items.

“The highest growth in retail sales is expected to come in the final quarter of 2014 due to the year-end school holidays and festive season. Furthermore, consumers may spend more before the goods and services tax (GST) comes into effect in April 2015,” Mier says.

Mier also noted that several negative news recently, such as the OPR hike and the downing of flight MH17, would have an impact on the local retail sector.

“But the increase in the OPR may affect retail sales of bigger items. The highest growth in retail sales is expected to come in the final quarter of 2014 due to the year-end school holidays and festive season.

“Furthermore, consumers may spend more before the GST comes into effect in April 2015,” it says.

Citing the Mier report, WTW points out that Malaysia continues to be an attractive investment destination, as the local retail market is expected to remain strong and attract international retailers, especially with rumours of expressions of interests by the French departmental store Lafayette and Japan-based Takashimaya Co Ltd.

Malaysia Retail Chain Association immediate past president Datuk Nelson Kwok believes that things will be looking up for the local retail sector in the second half of the year.

Kwok: ‘Malaysia is still a very attractive destination to shop, compared with other nearby countries.’
“In terms of performance, the second half will always be better than the first, mainly because there are more festive holidays in the later part of the year.”

On the GST, he says some people might be tempted to purchase goods early to avoid the higher tax.

Kwok, meanwhile, believes that the recent aviation tragedy might only have a near-term impact on the local retail sector.

“It will subside. Malaysia is still a very attractive destination to shop, compared with other nearby countries.”

In the first quarter of 2014, WTW said overall occupancy rates of the Klang Valley retail space remained stable at 89%, despite a marginal drop of 0.1% from the previous quarter.

Source: The Star

[winston]

Kenanga Research retains Malaysian REITs at Overweight
Friday July 11, 2014

KUALA LUMPUR: Kenanga Investment Research is maintaining its Overweight recommendation on Malaysian real estate investment trusts (MREITS) despite the 25 basis points rise in the Overnight Policy Rate (OPR) to 3.25%.

It said on Friday it did not expect the hike to have any significant impact on MREITs' earnings as MREITs have taken pre-emptive capital management measures over the last two years.

“We also believe the impact of this round of rate hikes on Malaysian Government Securities (MGS) yield has been priced-in by the market. However, should there be further hikes over the next six to 12 months, this may threaten our valuations and thus sector call,” it said.

Kenanga Research maintained its 10-year MGS target at 3.80% (20bps lower than current levels) on the premise of a possible European Quantitative Easing.

“Our target prices are and recommendatios are:-
1. KLCC (Outperform; TP: RM6.90),
2. Sunway REIT (Outperform; TP: RM1.56),
3. CMMT (Outperform; TP: RM1.59),
4. IGB REIT (Outperform; TP: RM1.35) and
5. Axis REIT (Underperform; TP: RM3.08).

Our Top Pick is KLCC due to earnings excitement from a potential acquisition,” it said.

It said Bank Negara Malaysia (BNM) raised the OPR by 25bps to 3.25%, after the Monetary Policy Committee (MPC) meeting on Thursday, which was the first rate hike since May 2011.

It added the increase in OPR was expected, given the rising inflationary pressure. The monetary authority had placed the floor and ceiling rate for the OPR at 3% and 3.5% respectively.

Kenanga Research explained the increase in OPR rates was typically negative on REITS' earnings in general due to higher financing cost.

However, it pointed out most of the MREITs under its coverage had taken pre-emptive capital management actions over the last two years in view of rising interest rates.

“Most have changed their debt mix to lean towards fixed rather than floating rate debts and those under our coverage have between 60% and 99% fixed rate debts, save for KLCC which has only 32% of its debts in fixed rates.

“A 25bps hike in OPR will have immaterial impact on the MREITs under our coverage; this also applies to KLCCSS. We did a stress test on KLCC and a 100bps increase in effective financing rates will reduce core earnings by only 1.6%, which we deem as not significant,” said the research house.

Source: The Star

[winston]

not vested

CIMB Research maintains Neutral outlook on Malaysian REITS
October 7, 2013

KUALA LUMPUR: CIMB Equities Research is retaining its Neutral call on the Malaysian REIT sector as the dividend yields of 5.1%-5.5% for FY13-14 are not particularly attractive relative to the 3.98% yield for 10-year MGS.

It said on Monday that also due to its bullish view on the overall market, it believes that investors will shy away from defensive stocks such as REITs, preferring sectors that offer higher returns such as oil & gas and construction.

“Our preferred REIT is KLCCP due to the prime location of its assets (Petronas Twin Towers and Suria KLCC) while its property development projects would provide the REIT with key assets in the longer term,” it said.

To recap, StarBizWeek had published an article focusing on the oversupply of retail malls in the Klang Valley which have caused rental rates to be flat in recent times.

“This surprised us as most of the retail REITs under our coverage recently achieved positive rental reversions of 10%-15%. The article did go on to highlight that the main story is not just oversupply but the disparity between the successful malls and the struggling ones,” it said.

CIMB Research said the StarBizWeek report stated successful malls are the likes of KLCC Property’s Suria KLCC and Pavilion REIT’s Pavilion, which thrive due to their status as the go-to destinations for fashion outlets.

According to property valuer Henry Butcher's MD the oversupply and overbuilding situation is only apparent in the city and not in the smaller towns.

“We think that the oversupply of malls is not a major concern yet. However, by 2015, mall space will increase by 28%, which could affect the occupancy rates of even the malls that are doing well.

“We recommend that investors stop accumulating REITs as dividend yields are not attractive relative to the risk-free rate. In the longer term, the rental reversion outlook does not look bright given the mall glut which will depress future rental reversions,” it said.

Source: The Star