In its quarterly property research report, DTZ Property Times 2Q2009, it said although the consumer sentiments index (CSI) in 1Q2009 showed a slight recovery 7.5 points from the previous quarter, consumers were reducing their spending on concerns the economy could deteriorate.

The report, issued on July 27, expects household income to deteriorate, while job and financial prospects remain gloomy.

DTZ Malaysia executive director Brian Koh said: “The manufacturing sector had in April alone seen a 7.7% decline Y-O-Y in the number of employees (1.1% decline month-on-month) and a 9.4% decline year-on-year in wages and salaries.

“According to the latest Economist Intelligence Unit (EIU) report, retail sales are expected to decline by 7.2% in 2009 compared to the historical average growth of 13.3% per annum in the last three years,” says Koh.

There was no significant change in the occupancy of shopping centres which remained above 90% at end 2Q2009.

“Hypermarkets and food retailers are even looking into expanding their retail outlets in new shopping centres in established and strong residential neighbourhoods,” he said adding rental in prime shopping centres remained stable, as they are less vulnerable to the economic slowdown.

Koh said the most affected retail sub-sectors were the fashion and high-end product retailers, who were experiencing contraction in sales and are sceptical about expanding.”

“Rents at well-known shopping centres like Suria KLCC, Mid Valley Megamall and 1 Utama in Bandar Utama, Petaling Jaya which enjoy high occupancy levels and visitor flows are expected to hold up well,” he said.

However, new and upcoming retail centres under construction were expected to experience downward pressure in targeted rents in their efforts to build up occupancy, says the report.

Among them are the Wangsa Walk (in Wangsa Maju), Bangsar Shopping Centre West Wing Annex extension (in Bangsar) and Subang Avenue (in Subang Jaya) which offer net lettable areas (NLA) of 273,243 sq ft, 70,000 sq ft and 250,000 sq ft respectively.

With the current oversupply of retail malls in the market, it will be a real testing time for shopping malls, especially those in the secondary area with poor population catchments, said Koh.

The global H1N1 flu pandemic will pose further challenges to the industry, which is facing increasing operating costs and lower revenues. Koh added prospects for the retail sector wwere expected to be weighed down by the continued contraction in the economy, which was forecast to recover only in 4Q2009.

In its DTZ Property Times 2Q2009 report, the research report showed buyers’ confidence within the residential property market was buoyed by the recent stock market rally on Bursa Malaysia, which restored investor’s confidence somewhat, especially towards high-end residential properties.

“Buyers were also motivated by low bank lending rates, more realistic asking prices and the ‘irresistible’ freebies, incentives and attractive packages offered by some property developers,” said DTZ Malaysia executive director, Brian Koh.

The report noted the increase in the number of residential transactions, particularly within the sub-sale market.

“Projects which have seen improved sales enquiries and sales included the preview launch of Eastern & Oriental Bhd’s St. Mary Residence serviced apartments in the Golden Triangle in June where about 85% of the 169 units were snapped up,” said Koh.

Koh said the residential sector remains challenging over the next six months as the overall economy is not expected to improve until end 2009, despite certain positive policy measures undertaken by the government.

“The recently announced overhaul in economic policies, particularly on the repeal of the foreign investment committee’s (FIC) approval for property transactions involving foreigners would boost interest from foreigners in the local property market, specifically the high-end residential segment,” he said.

Koh added residential property prices would continue to undergo a correction in the short term due to impending new supply and weak economic conditions.

Prices of high-end condos in the KLCC area have generally dropped between 10% and 20% from the previous year.

Besides, five projects are expected to be completed by 2H2009, supplying 951 units of high-end condominium units around the KLCC.
The report showed the overall rental market in KL picked up slightly during the second quarter, said the report.

Koh said average rents of high-end condos in the KLCC area has increased by 6.5% from the last quarter to RM4.08 psf per month.
However, the rental market is expected to face downward pressure due to the incoming supply of condo units in the second half of 2009 and towards the early part of 2010.

The Edge – 27th July 2009

DTZ said the office property sector faces downward pressure on rental and capital values due to weak demand and the new supply that will be completed in the next few years.

In the second half of the year, there is an impending supply of some 3.43 million sq ft in Kuala Lumpur.

DTZ said the downward trend may, however, be cushioned by the government’s recent liberalisation on economic policies targeting the services and financial sectors.

“The relaxation in policies is expected to promote foreign direct investment, with more foreign interests in the commercial property sector specifically,” it said in its DTZ Research Report, Malaysia Property Times Q2 2009, released yesterday.

Nevertheless, rents of prime office space in Q2 2009 remained unchanged at an average of RM6.14 per sq ft per month. This is attributed mainly to the fact that there was no new completion of office space in the city centre, and most of the prime office buildings were close to full occupancy at the time of review.

On the retail front, DTZ said there was no significant change in occupancy of existing shopping centres as at end Q2 2009, which remained at above 90 per cent.

But prospects for the retail property sector are expected to be weighed down by the continued contraction in the economy, which is forecast to recover only in the fourth quarter of this year.

“Rents in prime shopping centres remained stable as they are less vulnerable to the economic slowdown.

“However, new and upcoming centres that are currently under construction are expected to experience downward pressure in targeted rents in their efforts to build occupancy up to a higher level,” it said.

“With the oversupply of retail malls in the market, it will be a testing time for shopping malls, especially those in the secondary area with poor population catchments,” it added.

Meanwhile, the residential property sector would be challenging over the next six months as any improvement in the economic situation is not expected until the fourth quarter of this year.

“Prices continued to undergo corrections and are expected to continue softening in the short term in view of impending new supply and weak economic conditions,” it said.

Generally, prices of high-end condominiums in the Kuala Lumpur City Centre (KLCC) area have dropped by 20 per cent year-on-year.

Average rents of high-end condominiums in the KLCC area increased by 6.5 per cent quarter-on-quarter to RM4.08 per sq ft per month.

However, the rental market is expected to face downward pressure as a result of incoming massive supply of condominium units in and outside the city centre during the second half of this year and towards the early part of 2010.

DTZ said on a positive note, the recently announced overhaul in economic policies, particularly on the repeal of the foreign investment committee’s approval for property transactions involving foreigners, would boost interest from foreigners in the local property market, specifically on the high-end residential segment.

In terms of selling and buying of commercial properties on the market, DTZ revealed that there were only two major transactions in the second quarter, of which one is between related parties.

“There are still some investors out in the market looking for commercial properties with investment value.

“Over the next six months, sentiment is likely to recover with some investment activities by opportunistic funds but this will be selective and driven by value hunting,” it added.

Business Times – 28th July 2009