Sunway REIT, which has Sunway Putra Place in its portfolio, is one of the better performing Malaysian REITs.
Axis Business Campus is managed by Axis Reit Managers Bhd which believes that demand for industrial space and Grade A industrial facilities in Malaysia is still uphill.

THERE is a cause for concern in the property market with regards to the reportedly oversupply of units but it remains improbable that there will be a crash this year as only catastrophes, such as an economic recession or widespread job losses, will initiate it.

What is most certain, as predicted by some analysts, is that this year will continue to be a consolidation phase for the property market.

MIDF Amanah Investment Bank Bhd analyst Jessica Low said her firm is maintaining a positive stance on the property sector for this year, adding that there are positive leading indicators from the loan statistic and stable House Price Index outlook.

She is of the view that house prices will still hold well as there will be property launches with products at the right prices and locations.

“While we think property companies would continue to offer attractive packages to woo home buyers, we also think that the prices would hold well. We expect properties launched in the affordable price range to do well due to good demand for houses in this segment,” Low told NST Property.

Sharing her positivity is CH Williams Talhar & Wong Sdn Bhd managing director Foo Gee Jen. He expects the feel-good factor from last year to continue thriving.

“We will see a lot more activities coming in but more would be on the lower-end segment of the market, meaning affordable housing or anything that is below RM500,000 in the Klang Valley, Kuala Lumpur, Penang and Johor Baru. So this is positive for me. I think the market should be moving towards that,” said Foo.

MIXED PERFORMANCE

For the other segments in the market, Low foresees there will be mixed performance with the luxury market likely to stay flattish. Nevertheless, the freeze in luxury developments would help clear the existing supply of properties in the segment.

“For the commercial segment, we expect it to remain stagnant due to the lingering oversupply of office space, but on the retail side, we see marginal growth for established malls in prime locations due to high foot fall and occupancy rates. Our overall outlook on neighbourhood malls is stagnant due to increasing retail space,” said Low.

RHB Research Institute analyst Muhammad Syafiq Mohd Salam said the oversupply of office and retail spaces will continue to worsen this year.

“We have yet to see signs of easing in the oversupply situation in the office segment. Despite the weak demand, the supply of office space continues to grow, especially in Kuala Lumpur,” he said.

He pointed out that the total supply of office space in Kuala Lumpur has reached 118 million sq ft and this was much more than the supply in Bangkok, Jakarta or Manila.

The vacancies have also been rising in Greater Kuala Lumpur and it is currently experiencing its highest office vacancy rates in more than a decade (21.5 per cent as of first half of last year).

“In view of the upcoming supply over the next two years (estimated at more than 10 million sq ft), we expect the overall vacancy rate to rise further. This would exert pressure on the MREITs that have exposure in this segment, namely MRCB-Quill REIT, Axis REIT and Sunway REIT. We expect some of them to possibly face challenges in tenant retention,” said Syafiq.

Axis REIT Managers Bhd chief executive director Leong Kit May believes that demand for industrial space and Grade A industrial facilities in Malaysia is still growing.

“E-commerce would spur demand as this sector has yet to experience its full potential in terms of acceptance and take-up rates. Demand growth will also come from an increase in manufacturing activities, be it retailers, food producers, electronics parts manufacturing etc,” Leong told NST Property.

Syafiq, meanwhile, expects retail real-estate investment trusts (REITs) to face the same challenges as its office counterparts. This is because an additional 17 million sq ft of retail space is reportedly going to be added into the market by next year.

“Given the weak consumer sentiment, we expect the bigger malls like Mid Valley Megamall (Mid Valley), Suria KLCC and Pavilion to still fare better. On the flip side, the smaller ones and the mid-sized malls in suburban areas would be vulnerable to the current weak consumer spending and, hence, rental reversions are likely,” said Syafiq.

He said many REIT managers will likely try to retain existing tenants at the malls and avoid long vacancies.

Due to the rising borrowing costs, Syafiq expects REIT players, especially those delving in capital management, to start repositioning the portfolio mixes of fixed and floating rate loans.

“In the meantime, top-line growth is likely to be limited due to low rental reversions. Tenant retention is now the priority to maintain occupancy rates,” he said.

As a whole, he concluded that the REIT sector will be affected due to an oversupply in office and retail spaces, especially in Greater Kuala Lumpur, weak consumer sentiment, increasing operating expenditure, especially concerning labour and utilities, moderate growth in business conditions and intense competition from new hotels and non-licensed hospitality facilities such as Airbnb.

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