KUALA LUMPUR: Knight Frank Malaysia believes that the reintroduction of the Home Ownership Campaign (HOC) in June coupled with several stimulus packages as well as the initiatives tabled under Budget 2021 have offered a ray of hope for the sluggish residential market.
In its latest research report Real Estate Highlights 2nd Half of 2020, which touches on key property markets in Malaysia, the international real estate consultancy said a slight recovery in the residential market is observed post Movement Control Order (MCO). This recovery sentiment is strengthened with selected developers reporting improved bookings supported by the low interest rate environment and pent-up demand.
However, the recent spike of Covid-19 cases leading to the reimplementation of the MCO till Jan 26, will likely derail the market recovery in the short term. According to Knight Frank Malaysia managing director Sarkunan Subramaniam, the performance of the residential market is very much dependent on how the economy moves forward.
The anticipated commercial rollout of the Covid-19 vaccine by 1H2021 will certainly boost the hopes for the country’s economic recovery and lift overall consumer sentiment. However, the current ongoing political uncertainties amid the worsening virus crisis have led property buyers as well as developers to rethink their future plans and strategies.
The hotel and retail industry is expected to see continued disruptions and challenges in the face of this unprecedented crisis. Initiatives taken to flatten the Covid-19 curve with the country being placed under various phases of MCO since March 2020, coupled with travel restrictions and closure of international borders, have severely impacted both industries, resulting in the temporary and permanent closures of selected retail outlets and hotels nationwide.
Transactional activity remains lacklustre as investor confidence and sentiment continue to be undermined by the pandemic. Knight Frank Malaysia deputy managing director Keith Ooi said 2020 will always be remembered as a disruptive year, with the third wave of infection in selected key cities having weakened the recovery momentum in the retail industry.
For continued success, retailers and stakeholders are expected to embrace new retailing dimensions by keeping pace with changes in consumer behaviour, patterns and market dynamics. With Covid-19 remaining as a key concern heading into 2021, occupancies and rents for the retail sector are expected to decline moderately in the coming year.
However, he anticipates that the values of prime grade retail assets should remain relatively stable despite the rental decline, given their more resilient tenant and lease profiles, and the fact that yields will be buffered by the existing low interest rate environment.
Knight Frank Malaysia executive director (capital markets) James Buckley said: “The hospitality sector has had an incredibly challenging 2020. We are optimistic that as the vaccine is rolled out globally and borders are reopened, international tourists will begin to return in 2H2021, but it is likely to take some time to recover to pre-pandemic levels. Shrewd investors who are confident in their analysis and recognise the market cycle will see this period as an opportunity to acquire quality prime assets which will retain value."
Sabah’s tourism and hospitality industry witnessed a slight pickup in activity following commencement of the recovery MCO phase in June, supported by improved domestic visitor arrivals and joint efforts by the relevant authorities and operators. However, the resurgence of Covid-19 cases which led to the re-imposition of travel restrictions under the conditional MCO phase in October had once again dampened the situation.
Moving forward, the full recovery of Sabah’s tourism and hospitality industry will be subjected to the reopening of international borders, amongst others. Knight Frank Sabah executive director Alexel Chen said: “The tourism and hospitality industry has not been faring well in the face of the pandemic but we expect a silver lining after the storm, a redirection of Chinese tourists will lead the way due to ongoing geopolitical tensions between China and several western nations.”
Office demand has also weakened, now with companies and corporations reviewing or postponing their real estate decisions to strike a balance between driving growth while maintaining operational and cost-efficiency. The pandemic will potentially switch the workplace trend from a centralised model to a virtual model in the future.
Knight Frank Malaysia executive director (corporate services) Teh Young Khean said: “Organisations that have been adopting hybrid working model since the start of MCO may find this model beneficial and consider it as a go-to model moving forward. The office space function may change to support this arrangement by providing a ground for physical interaction and collaboration among the employees when required. The office is here to stay with a tweak to its purpose.”
Buckley said: “In Kuala Lumpur, we see a two-tier office market and a difference in the performance of new office space compared to second-hand office space (existing buildings which have not undergone major refurbishment before being marketed of which there is a lot in the city).”
Investors have shied away from buying second-hand space which comes with more risk as tenants relocate to better quality new office accommodation, he said.
"These second-hand buildings are finding it hard to compete for tenants who are upgrading to new offices in KL City and KL Fringe locations. Older office buildings will see their prices continue to soften and, in some cases, will need to be repurposed into other uses. For those investors looking to acquire institutional quality income-producing office assets, there are few good options to choose from,” Buckley said.
While in Penang, the office sector occupancy has continued to remain strong amid the pandemic. The average occupancy rate for four prime buildings monitored in George Town remained at 89.0% while the average occupancy rate in Penang continued to hold steady at 78.2% as of 3Q2020.
Knight Frank Penang executive director Mark Saw said: “Penang, being the second most attractive location in Malaysia after Klang Valley for placement of MSC companies, continues to see the state government through Penang Development Corporation (PDC) taking proactive initiatives to develop Global Business Services (GBS) buildings."
Apart from the traditional commercial asset class, there is also rising interest in data centres, an alternative class of asset. Knight Frank Johor branch head Debbie Choy said technological growth fuelled by the industrial 4.0 revolution and 5G efforts by both the public and private sectors has increased the number of internet users and durations.
In the wake of the current pandemic, the importance of cloud computing has led to an increased demand for data centres, an alternative asset class. “One of the key requirements for a data centre is to have stable power supply and Malaysia’s ability to provide for this along with more economical land prices as compared to our neighbouring countries such as Hong Kong and Singapore gives appeal to investors and operators of the same category. We have begun to receive enquiries and expect to receive more in 2021," said Choy.