KL faces property glut as economy bites

From the Malaysian Insider

UPDATED @ 07:21:16 PM 31-10-2011

By Lee Wei Lian

October 31, 2011

KUALA LUMPUR, Oct 31 — Kuala Lumpur is facing an impending surge of new office and retail space that could further depress rental yields already under pressure from the current oversupply, said CB Richard Ellis (CBRE) Malaysia today.

The international real estate service firm said the residential market is also beginning to ease as capital appreciation has reached its peak, and rent in some high-end areas of the city have come down by almost 50 per cent.

A combination of a squeeze on rental yields and stagnant capital values could put pressure on over-leveraged investors.

Christoper Boyd, executive chairman of CBRE, said rent for some luxury condominiums in oversupplied markets such as KLCC and Mont Kiara have almost halved, while the office space sector is also looking at an oversupply situation over the next 18 months with the rental market becoming more competitive.

CBRE managing director Allan Soo said KL is set to overtake Singapore in terms of retail space per capita as new malls near completion.

He noted that the Klang Valley currently has 7.1 sq ft of retail space per person, which is equivalent to Singapore, but is set to overtake the city state when approximately 10 million sq ft of planned retail space comes online by 2014.

Soo pointed out, however, that while Singapore’s retail market was strong, KL was a tenant’s market with some malls resorting to paying clients to take up space.

“Here we have to beg tenants,” said Soo.

Figures provided by Soo show that KL’s total retail space is set to grow from 43.7 million sq ft currently spread out among 149 malls and hypermarkets to 53 million sq ft by 2014.

“Our analysis shows that only 43 or one third of the retail centres and hypermarkets are performing,” he said. “You must build grade A, building grade B me too malls won’t work.”

Boyd said that over four million sq ft of office space had come online this year which was far in excess of normal demand.

He said that more than six million sq ft of office space meanwhile is expected next year while 25 million is expected by 2015 excluding the mega-projects of KL Metropolis, PNB’s 100 storey Warisan Merdeka and the Kuala Lumpur International Financial District.

“We’re looking at the supply outstripping demand with a likely impact on rental values,” said Boyd.

The CBRE executive chairman also said that the residential market could see some potential buyers drop out due to issues of affordability.

The Malaysian Insider had earlier reported that investors and home buyers have moved to the sidelines as worries of a global economic slowdown, government cooling measures and uncertainty due to the upcoming general election start to bite.

The consensus among analysts and industry veterans appears to be that sales have slowed as the market enters a cooling phase and will continue to slow as buyers take a “wait-and-see” approach, although a hard crash landing of the property market is not expected unless the economy plunges first.

Property analysts contacted by The Malaysian Insider expect sales to slow from a high of 21 per cent growth last year to between zero and five per cent growth next year or even contract if the economy takes a turn for the worse.K