Malaysia’s stable economy, low land costs and high demand for commercial units are attracting the attention of local and foreign investors. And the consensus among consultants and developers canvassed by fDi is that commercial properties are in scarce supply in the fast-emerging south-east Asian economy.
Christopher Boyd, executive chairman at real estate consultancy Regroup Associates, believes the future looks good despite the prevailing shortage in supply. “We are bullish on the prospects for the Malaysian commercial property market, particularly in Kuala Lumpur and surrounding areas in the Klang Valley [despite] vacancy rates in many of the best buildings being down to virtually zero,” he says.
“Even in the Golden Triangle – the capital’s premier office precinct – new supply in 2007 will be a minimal 220,000 square feet (sq ft), and 400,000 sq ft in 2008.”
Regroup forecasts that office rents will rise at least 15% in 2007 but says that yields from prime office investments will fall from 7% to 6% by end-2008 as a result of pressure from demand for investment properties and a strong currency. “We see commercial land as being too cheap and an upward correction is under way,” says Mr Boyd. “When the going rate for a good commercial site was RM750 ($219) per sq ft 18 months ago, we predicted a rise to RM1000, which attracted some scepticism at the time. Now, the RM1000 has been broken and we believe we are well on the way to seeing transactions at RM2000 per sq ft in Kuala Lumpur.”
At property developer SP Setia, Michelle Liew agrees: “The scarce supply [of office units], especially in prime areas such as downtown Kuala Lumpur, has pushed rental rates up and increased the occupancy rate.”
Shops are usually a hybrid between retail and office, or residential space, she says. “These are especially popular within integrated townships with a mature population. The ground floor space is usually used for retail purposes, while the upper levels provide offices for small businesses or serve as living quarters for the shop operators. This is a niche market, which has seen limited new supply over the past few years, hence the present pick-up in demand, especially in strategic locations such as Selangor, Johor and Penang.”
Funds have become a popular investment vehicle for locals and foreigners looking to make gains from the market – and Malaysia’s leading role in the booming Islamic finance industry can help. Abu Dhabi-based investment bank Injaz Mena has set up a $100m commercial property fund in partnership with Singapore-based fund manager AsiaEquity Partners to invest in commercial offices. AsiaEquity managing director Yusof Wahid says: “We look for investments that offer above-average returns. We are focusing on Singapore and Malaysia before revising our strategy to go into China and Vietnam.”
Ahmad Bin Ali al-Dahery, Injaz Mena chief executive, says the reason why such opportunities exist in Malaysia is because “much of the over-hang in commercial properties in markets like Hong Kong and Singapore has been absorbed, and the ensuing demand for space has spilled over into other regional markets.”
AsiaEquity says that investors can expect annual returns of 15%.
Port Klang Free Zone
One of the most eagerly awaited outcomes in the market is that of the 1000-acre Port Klang Free Zone (PKFZ) in Kuala Lumpur, which began operating in late 2006, only three years after the project’s inception.
The owner, Port Klang Authority, has hired Jafza International, the international management division of Dubai’s Jebel Ali Free Zone, to manage the project.
PKFZ includes a business complex, light industrial and warehouse units, and prepared land for construction.