DTZ Property Times Kuala Lumpur, Q2 2011


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DTZ Property Times Kuala Lumpur, Q2 2011

  1. 1. Property Times Kuala Lumpur Q2 2011 Active investment market14 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 furtherContents with a lower level of exports and industrial production.Executive summary 1 • Prime office rents moved upwards slightly in Q2 2011 butEconomic overview 2Offices 3 continued to be under pressure with the anticipation ofRetail 4 substantial supply in the pipeline (Figure 1).Residential 5Investment 6 • The retail market continues to be active but the increase inKey statistics 7 inflation could dampen consumer spending. Nevertheless, theDefinitions 8Contacts 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 newBrian KohExecutive Director launches but affordable housing is a recurring theme for theConsulting & Research Government to tackle.brian_koh@dtz.com.my • The investment market enjoyed an active quarter driven by REITHalimah Mohamad deals with a focus on retail properties and commercial properties.ManagerConsulting & Researchhalimah_nor@dtz.com.my Figure 1Contacts Average prime office gross rents RM per sq ft per monthChua Chor Hoon 7Head of SEA Researchchorhoon_chua@dtz.com.sg 6Ong Choon Fah 5Head of Consulting & Research, 4SEAchoonfah_ong@dtz.com.sg 3David Green-Morgan 2Head of Asia Pacific Researchdavid.green-morgan@dtz.com 1Tony McGough 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Global Head of Forecasting &Strategy Researchtony.mcgough@dtz.com Source: DTZ ResearchHans VrensenGlobal Head of Researchhans.vrensen@dtz.comwww.dtz.com 1
  2. 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. 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 10• 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 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 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 Researchwww.dtz.com 3
  4. 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 2006 2007 2008 2009 2010 2011 2012 2013 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.www.dtz.com 4
  5. 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 4 500 400 3 300 2 200 1 100 0 0 2005 2006 2007 2008 2009 2010 Q1 11 Q2 11 Capital values (LHS) Rents (RHS) Source: DTZ Researchwww.dtz.com 5
  6. 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 Q1 11 Q2 11 Sunway REIT at RM513.95m. Source: DTZ ResearchTable 4Significant dealsProperty Purchaser Vendor PriceEast Coast Mall, Kuantan CapitalMalls Malaysia Trust Astral Realty Sdn Bhd RM310mAmcorp Trade Centre, PJ AmCorp Properties Sdn Bhd Melawangi RM75mPrima 9, Cyberjaya AM First REIT Prima Group RM72mPrima 10, Cyberjaya AM First REIT Prima Group RM61mSource: DTZ Researchwww.dtz.com 6
  7. 7. Key statisticsTable 5Markets QOQ YOY Q2 Q3 Q4 Q1 Q2 change change Directional 2010 2010 2010 2011 2011 outlook (%) (%)OfficeNet 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 ResearchTable 6Leasing transactionsAddress Size (sq ft) Tenant SectorVista Tower, KL - UOB OfficeCap Square, KL 15,000 Tradewinds OfficeMenara Amcorp, PJ 3,000 Lembaga Totalisator OfficeVista Tower, KL 1,400 GECI OfficeSource: DTZ Researchwww.dtz.com 7
  8. 8. DefinitionsDevelopment pipelineComprises 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 absorptionThe change in total occupied floorspace over a specifiedperiod of time, either positive or negative.New supplyTotal floorspace which is ready for occupation eithernow or within the next 6 months. Ready for occupationmeans practical completion, where either the buildinghas been issued with an occupancy permit, whererequired, or where only fit-out is lacking.Prelet/pre-commitA development leased or sold prior to completion.Prime rentThe highest rent that could be achieved for a typicalbuilding/unit of the highest quality and specification inthe 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 exceptionaldeals for that particular market.)StockTotal accommodation in the commercial and publicsectors both occupied and vacant.Take-upFloorspace acquired for occupation, including thefollowing: 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 ratesThe percentage of total net lettable area/units occupiedwith available stock.www.dtz.com 8
  9. 9. ContactsConsulting & ResearchBrian Koh +60 (0)3 2161 7228 ext 800 brian_koh@dtz.com.myHalimah Mohd Nor +60 (0)3 2161 7228 ext 814 halimah_nor@dtz.com.myMarkanah Mat Taib +60 (0)3 2161 7228 ext 815 markanah_taib@dtz.com.myGlobal Corporate ServicesChua Wei Lin +60 (0)3 2161 7228 weilin_chua@dtz.com.sgYasmine Mohd Zamirdin +60 (0)3 2161 7228 ext 612 yasmine_zamirdin@dtz.com.myChintan Mithalwala +60 (0)3 2161 7228 ext 610 chintan_mithalwala@dtz.com.myInvestmentBrian Koh +60 (0)3 2161 7228 ext 800 brian_koh@dtz.com.myPeter Chew Lye Sing +60 (0)3 2161 7228 ext 810 peter_chew@dtz.com.mySr Low Han Hoe +60 (0)3 2161 7228 ext 202 hanhoe_low@dtz.com.myTony DeCosta +60 (0)3 2161 7228 ext 811 tony_decosta@dtz.com.myProperty ManagementT. Subramaniam +60 (0)3 2161 7228 ext 600 t_subramaniam@dtz.com.myMohd Azhan Che Mat +60 (0)3 2161 7228 ext 412 mohd_azhan@dtz.com.myResidentialEddy Wong +60 (0)3 2161 7228 ext 550 eddy_wong@dtz.com.myChong Yen Yee +60 (0)3 2161 7228 ext 551 yenyee_chong@dtz.com.myAlex Loo Chon How +60 (0)3 2161 7228 ext 558 alex_loo@dtz.com.myRetailUngku Suseelawati Ungku Omar +60 (0)3 2161 7228 ext 300 suseela@dtz.com.myJoseph Cheah +60 (0)3 2161 7228 ext 321 joseph_cheah@dtz.com.mySusan Yew +60 (0)3 2161 7228 ext 310 susan_yew@dtz.com.myValuationSr Low Han Hoe +60 (0)3 2161 7228 ext 202 hanhoe_low@dtz.com.myHanafi Abd Rahman +60 (0)3 2161 7227 ext 204 hanafi_rahman@dtz.com.mywww.dtz.com 9
  10. 10. Disclaimer This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ. © DTZ July 2011www.dtz.com