Bank Negara Malaysia (BNM) saw an uptick in commercial activity in the commercial property sector in 2018, but the oversupply of retail and office space will only serve to exacerbate the existing oversupply of such properties.
According to its 2018 Financial Stability and Payment Systems Report, office space and shopping complexes saw higher transaction volumes and values, particularly with regards to properties over RM500,000, while industrial properties priced RM1 million and above also saw growth.
The large incoming supply of new and planned office space in the Klang Valley and retail space nationwide is set to worsen the existing oversupply in the commercial market. "This is despite the moderation observed in the loan approval rate for the construction of OSSC to 73.1% from 2017's 79.7%." read the report.
It added that this remains a risk as additional commercial spaces could remain unabsorbed, as it stated the continued deterioration in vacancy rates could be further impacted by the domestic economy.
BNM said as it stands Klang Valley average rental rates remain depressed and elevated risks of property prices adjusting sharply lower are present.
"Building owners continued to offer generous incentives to increase tenant demand, including rent holidays and discounts to asking rents. Such inducements will likely further depress effective rental rates," said the report.
For 2018, total financial institution exposure to the domestic property market grew 5.9% to RM901.3 billion, compared with 2017's 7.1%, in line with reducing housing affordability and higher oversupply risks in the non-residential property market.