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Supply-Demand Imbalance to Impose Challenges for Office Market in KL

Escalating supply and slowing occupiers demand office space are expected to impose challenges for the office market in Kuala Lumpur for the next few years, according to Nawawi Tie Leung Property Consultants (NTLP).

In its real estate market second quarter (2Q19) report titled "Muted global conditions affected the Malaysian market", the firm said that for medium- to long-term security, it expects a growing trend of repurposing old office buildings while alternative uses will be explored for new or under-construction buildings.

Co-working spaces driving the office market

"Tech companies and co-working spaces are anticipated to drive the office market for the coming few quarters," it said. Commenting on 2Q19, NTLP said investment sales fell 60% quarter-on-quarter (q-o-q) in the second quarter to RM352.5 million from RM1.15 billion.

"Major sales listings were noted in both the industrial and commercial sectors," it said. On the office segment, it said the market inclined towards repurposing and co-working spaces as the office average occupancy rate declined marginally to 79.7%.

Retail Sales, Investment Sales

Meanwhile, it said retail sales performed better than expected at 3.8%. "The festive season of Hari Raya boosted the growth for 2Q19 at 5.5% year-on-year," it said. NTLP said prices and rents for high-end condominiums changed marginally q-o-q and stood at RM1, 036 per square foot (sq ft) and RM3.86 per sq ft per month respectively.

On investment sales, the firm said it continues to see buying opportunities amidst weakening market conditions, but it will require investors to have more than foresight and gumption to see beyond the current risks. "Currently, there is a distinct lack of catalysts to drive momentum so the second half of 2019 may turn out to be lackadaisical after all despite the promising start to the year," it said.

Residential Sales

Meanwhile, in the residential segment, it said the need for affordable housing was undeniable. "However, the demand-supply mismatch is resulting in the rising overhang. Thus, there is a need to evaluate this segment with a realistic approach. "Overall, the high-end residential property market is anticipated to remain sluggish in such conditions for the upcoming quarters," said NTLP.

E-commerce and rapid digitalisation in the global retail

Commenting on the retail industry, NTLP said the Retail Group of Malaysia has revised the growth rate of retail sales to 4.9% for the year 2019 due to improved sales in 1Q. It said the year ending quarter is expected to perform significantly better with a 5.8% growth rate owing to the school holidays and year-end sales while 3Q is expected to be moderate with 3.1%.

"Due to the growing penetration of e-commerce and the rapid digitalisation in the global retail formats, malls need to be innovative and future-ready to accommodate the changes likely to be brought in by the digital wave. "Soon, we are expecting more digitally compliance retail formats in Malaysia's retail industry to adapt to changing consumer shopping behaviour," it said.

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