_Malaysia Real Estate Highlights, 1st Half 2017 – Commercial sector update

Kuala Lumpur and Beyond (Selangor) Office sector

• As of 1H2017, the cumulative supply of purpose-built office space in Kuala Lumpur and Selangor stood at circa 99.0 million sq ft. Eight completions during the review period contributed some 2.63 million sq ft of space to the existing stock.
• The quality of office stock for both Kuala Lumpur and Selangor continues to be upgraded with the completion of more Grade A and dual-compliant buildings catering to the requirements of large corporates and multinational companies.
• Refurbishment and redevelopment opportunities abound for well-located older and lower grade office stock.
• The scheduled full completion of the Sungai Buloh-Kajang MRT Line (MRT Line 1) is expected to boost demand for offices in established and upcoming decentralised office locations.

Klang Valley Retail Market

• The MIER Consumer Sentiment Index (CSI) remains weak below the threshold level of 100 points despite improving to register at 76.6 points in 1Q2017 (4Q2016: 69.8 points).
• Retail sales for 1Q2017 dipped 1.2% when compared to the corresponding period in 2016 as consumers continue to remain cautious in their spending amid rising cost of living.
• In respond to challenges in the retail market, operators are taking proactive measures to refurbish, reconfigure and reposition their shopping centres to improve footfalls and maintain competitiveness.
• Besides asset enhancement initiatives (AEIs), developers and operators are continuously refreshing their tenant and trade mix to remain competitive in a diluted market. More retailers continue to embrace the concept of 'clicks and mortar'.

Penang Office and Retail market

• In the office sector, some buildings have achieved slight increases in occupancy levels and rentals. The occupancy rates for the four prime office buildings monitored in Georgetown have improved slightly upwards to range of 90% to 100% compared to 2H2016’s range of 80% to 100%. 
• The increasing supply of shopping mall space and opening of new outlets is becoming a huge challenge to mall owners and landlords who are trying to keep both occupancy and rental levels up.
• Occupancy rates for the prime shopping malls on the island range from 80% to 98% whilst secondary shopping mall, the range is generally from 70% to 90%. 

Johor Bahru Office, Retail and Industrial market

• The total supply of purpose built office space in Johor was recorded at about 12.22 million sq ft as of 1Q2017, circa 4.7% increase y-o-y.
• The supply of office space is set to increase over the next few years as on-going developments in Johor Bahru City Centre and Medini move closer to completion. 
• As of 1Q2017, total retail space in Johor stood at 18.97 million sq ft, a 3.5% increase y-o-y, 1Q2016 was at 18.33 million. Two-third (65.5%) of the retail stock comes from Johor Bahru. Overall occupancy dipped marginally to record at 75.6% in 1Q2017, 1Q2016 was at 75.9%. 
• For 1Q2017, the industrial sector in Johor shows different trend where the volume of transactions declined (1.8%) whereas the value of transactions increase significantly about 75.5% compared to similar period in 1Q2016. 
• In terms of volume of transactions, District of Johor Bahru (53.6%) and Kulaijaya (14.3%) are leading among other districts while for value of transactions; District of Johor Bahru recorded 53.4% from the total value, followed by Kulaijaya (18.7%). 

Kota Kinabalu Office and Retail market

• The office sub-sector continued to hold steady with both occupancies and rentals maintaining at relatively healthy level.
• As of end of 2016, the total supply of purpose-built office space in Kota Kinabalu stood at about 6.3 million sq ft with an overall occupancy rate of 89%. 
• In view of the high impending supply, the retail sector is facing a more challenging phase to sustain. Overall occupancy rates are anticipated to be affected with new malls entering the market and slower take-up rate for new retail space.
• The total retail space in Kota Kinabalu currently stands at circa 5.65 million sq ft with the addition of some 74,666 sq ft. Overall occupancy rate improved from 78% in 2H2015 to 86% in 2H2016. 

Read the full report on Malaysia Real Estate Highlights – 1H2017.