CBRE | WTW cautiously optimistic about moderate growth in 2022’s property market

27 January 2022

(From left) Peh, Tan, Foo and Lo presenting the CBRE | WTW 2022 Market Outlook Report (Photo by Patrick Goh/The Edge)

This year, the property market is expected to see moderate growth, in tandem with the expected recovery of the global economy, according to CBRE | WTW group managing director Foo Gee Jen during the media briefing on the real estate consultancy’s 2022 Market Outlook Report on Jan 11.

“The economic recovery will be in tandem with the state of the pandemic. Despite the new variants, we are optimistic about the advancements in medical science. Based on the World Health Organization’s (WHO) projection, this year [could mark the end of the pandemic’s acute stage],” says Foo.

He also points to the strong commodity prices — such as that of crude palm oil, which has hit RM5,000 per tonne — that will drive growth and spending on property. There is also expectation of an adjustment to the overnight policy rate to ­“alleviate the pressure of high inflation”.

“Property prices will eventually go up this year, not so much because of the strong demand or speculation, but driven by cost push. We believe the low interest regime will be able to support the housing mortgage market,” says Foo.

He says the country’s real estate market in 2021 had remained subdued and unchanged from 2020. “However, Malaysia is quite fortunate to have received much support from the government, including the Home Ownership Campaign, loan moratorium and several other initiatives, namely Penjana, wage subsidy and rental waiver, among others.”

Koh says Kota Kinabalu’s domestic tourism looks promising as locals are discovering new places of interest (Photo by CBRE | WTW)

Property developers were cautiously optimistic, evident by the continued search for land in the growth corridors of the Klang Valley, Penang and Johor Baru.

As for opportunities in 2022, Foo says the development of data centres, workers’ accommodation, retirement living, health and wellness living, and last-mile delivery centres are areas to look at.

However, roadblocks that may derail the expected growth are political instability, supply chain disruptions, supply constriction, inflated shipping and logistics costs, the rising cost of raw materials, higher energy cost and commodity prices, weak domestic currency and shortage of labour, he highlights.

At the event, CBRE | WTW directors Tan Ka ­Leong, Jonathan Lo and Peh Seng Yee presented on the property markets in the Klang Valley, Iskandar Malaysia and Penang respectively, while WTWY (CH Williams Talhar Wong & Yeo) managing director Robert Ting and WTW Sabah director Cornelius Koh gave their market insights for Sarawak and Kota Kinabalu respectively.

Ting: The Pan Borneo Highway is already 70% completed and will spur development of satellite towns along its path

Residential sector to be driven by local demand

The report highlights that the residential sector will be driven by local demand in 2022, and understanding what the needs are on a practical level will be crucial to the long-term recovery of the sector.

In the Klang Valley, the total planned supply moderated by 3.9%, as the high-rise residential sub-sector registered a smaller planned supply of about 185,000 units or -6.7% as at 3Q2021.

“The luxury market, especially the high-rise sub-sector, will see foreign purchasers reduce to a smaller market segment,” says Tan, adding that sales will increasingly be dependent on the local market and buyers in the M40 segment.

As for Penang, Peh points out that the residential market’s recovery is expected to spill over into 2022. “It will be a buyers’ market for high-rise residential properties as this sub-sector forms the bulk of the overhang.”

The report notes that high-rise units in Penang continued to form the bulk of the overhang units, about 88%, totalling 4,257 units worth about RM3.3 billion. Those priced from RM1 million have experienced sales pressure, it adds.

As for landed properties in Penang, Peh says they will remain resilient and future launches are expected to trend towards self-sustainable developments on a smaller scale, as well as fulfilling the demand for affordable homes.

In Iskandar Malaysia, Lo expects landed homes to continue seeing good demand, particularly houses at good locations and with reasonable prices. “Last year, we saw property developers acquiring land to expand existing projects and build new ones. This includes Scientex Bhd’s acquisition of eight parcels of development land measuring about 960 acres from S P Setia Bhd for RM518 million.”

However, Lo notes that Iskandar Malaysia’s high-rise residential supply glut will take some time to resolve. According to the report, the overhang in high-rise residential properties saw a downward trend in 2021, a slight reduction from 19,046 units in 2020 to 16,793 units in 3Q2021.

In Kota Kinabalu, the residential market experienced better performance with improved subsale transactions, but saw limited new launches, the report notes.

Whereas in Sarawak, the new supply of high-rise residential units will continue to outstrip that of landed residential units, Ting notes. “The market will continue to experience saturation in this sub-sector, especially in Kuching, Miri and Bintulu. Unit prices are hovering about RM400 psf for apartments and RM600 psf for city condominiums.”

Industrial sector’s bright outlook

The continued growth of the industrial sector will be supported by rising demand from e-commerce activities and awareness of improved inventory planning to mitigate the impact of supply chain disruptions, says the report.

On the Klang Valley’s industrial sector, Tan says it will see a supply of 0.5 million sq ft entering the market in 2022. He observes that the true demand for industrial and logistics space trends towards built-to-suit developments.

“Market players should pay attention and carefully study what the demand is before developing industrial properties. Otherwise, this may create an imbalance in the market in terms of demand and supply in the foreseeable two to three years. Based on our survey, there is potentially another five million sq ft of logistics and warehouse space that will enter the market in 2024,” he cautions.

According to the report, active acquisitions of industrial land in the Klang Valley were reported mainly in Northern Klang/Shah Alam and Kuala Langat, indicating a rise in demand along the West Coast Expressway.

It adds that about 1.31 million sq ft of warehousing are under construction and that the rise of warehousing supply may not lead to oversupply as the offerings are high-quality warehouses in high-demand locations.

The report highlighted that Nilai and Seremban are the most vibrant areas for industrial activities in Negeri Sembilan, benefiting from their proximity to the Klang Valley, and with land available at reasonable prices. It adds that the sector’s bright outlook is supported by the latest developments in Malaysia Vision Valley and several infrastructure projects. The hotspots are Techpark Enstek, Sendayan TechValley and Nilai industrial area.

In Penang, Seberang Perai remains the industrial hotspot. “Greenfield investment is expected to extend to Batu Kawan Industrial Park 2 due to the acceleration of investment in the existing Batu Kawan Industrial Park. In general, an active industrial market is expected to spill over into 2022. As such, some increases in prices and rents are expected,” says Peh.

As for Iskandar Malaysia, Lo is expecting the industrial sector to see an upward trend in 2022, with the sector back to operating at full capacity.

According to the report, Johor’s industrial sector is still resilient and on the lookout for investments. The state recorded about RM3.77 billion in total approved investments in 2Q2021, which comprised 78% domestic investments and 22% foreign direct investments (FDIs).

In Sarawak, the industrial and logistics sector is anticipated to remain stable, with further expansions expected this year because of the high-tech electronics sub-sector, which will increase FDI, Ting notes. “The supply chains, logistics and warehousing remain encouraging in Sarawak. In fact, the average rental rate is expected to hover around RM1.80 psf, with a yield of about 4.5% per annum.”

Tenant retention a key strategy in office and retail sectors

The Klang Valley office and retail sectors remain a tenant’s market, where tenant retention remains the primary strategy. The expected incoming supply of retail and office space may pose challenges to these two sectors, says Tan.

“The purpose-built office sector in the Klang Valley has a cumulative supply of 119 million sq ft, and this year, another 2.9 million sq ft is expected to enter the market. Occupancy rates are currently holding at just below 80%. In the retail sector, we are expecting slightly more than three million sq ft of space to enter the market,” he says.

Meanwhile, Tan says there are opportunities in the market for repurposing, repositioning and restrategising old and underperforming properties, especially those within core business areas, to unlock their value.

In Penang, Peh anticipates a healthy office market in the short term amid stable rents and occupancy rates. “Prospects for co-working spaces are still encouraging as they remain a reliable alternative to traditional office spaces.”

As for the retail sector, Peh says normalisation spurred by the recovery will continue in 2022. “However, rents will remain flattish and there will be a widening gap between newer and older complexes.”

According to Lo, the purpose-built office sector in Iskandar Malaysia will remain sluggish this year, and “flexible arrangements ought to be provided to meet changes in working styles”.

Ting says the opening of Brunei’s borders will create a better retail outlook, especially for Miri. He notes that opportunities in Sarawak’s market are in the Pan Borneo Highway, which will improve logistics and open up new areas. “The route was already 70% completed as at November last year and will spur the development of satellite towns along its path.

“A new industrial zone launched in Kalimantan, Indonesia — covering 30,000ha — is also expected to create a spillover effect for Sarawak in terms of economic activities. The major industrial estate started construction in December last year,” he adds.

Hotel sector continues to rely on domestic tourism

The hotel sector’s recovery will continue to depend on local travellers and support by the government, as well as attractive room packages by operators, according to the report.

Presenting on Penang’s hotel sector, Peh says travel bubbles and government initiatives will help in the recovery of the sector. “Pent-up demand for medical tourism and a V-shaped recovery are expected once international borders reopen.”

The significant number of hotel rooms in the pipeline will intensify market competition, he adds.

As for Johor, Lo says the recovery of the state’s retail and tourism sectors will depend on the progress of the vaccinated travel lane (VTL). Furthermore, “domestic tourism has potential to improve further, particularly in nature-focused areas”, he highlights.

According to Koh, domestic tourism in Kota Kinabalu looks promising as locals “move around to discover new places of interest and popularise previously less popular destinations”.

Meanwhile, Ting notes that the Pan Borneo Highway will also spur tourism by allowing shorter travel time between cities and tourist spots.

Source: The Edge Markets, January 27 2022