Boston, MA -- (ReleaseWire) -- 02/27/2014 -- Overall, BMI has a positive outlook for the Malaysian commercial real estate sector. In particular positive demographics with increasing income levels, strong FDI levels and the government's plan to increase the population of the Kuala Lumpur area to 10 million from the current 6 million by 2020 will also spur greater property demand. Downside threats to our outlook include: an oversupply of office and retail space, a mismatch of investor specifications and new developments and China's slowing economy negatively impacting demand for industrial space.
There are strong downside risks to our forecasts; with an estimated 17 million square feet coming online between 2015-2017 demand would have to double to absorb this supply. The over-supply of commercial real estate could result in depressed rentals and yields. Additional downside risks to the market are the vacancies resulting from a mismatch of specifications and tenant's needs. According to an analyst at Savills Research there is a trend of tenants leaving buildings that are 10-15 years old as a result of poor maintenance standards. On the bright side we are witnessing an increasing trend of owners of old buildings refurbishing and developing to compete with newer buildings.
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Despite improvements in the overall investment climate, persistent economic headwinds emanating from China and persistent structural difficulties, BMI is forecasting GDP growth of 4.4% for 2014. We expect this slowdown in exports to China to continue to unfold in 2014 which is likely to dampen the demand for industrial and office buildings in 2014. On a more positive note, the government has been successful in controlling inflation.
While oversupply remains a concern in the office sector, Malaysia's retail sector has benefitted strongly from increased consumption levels flowing from a rising and increasingly urbanized middle class. We do not expect rents to move much in the short term as demand and foreign investment continues to return to the market; price levels into 2014 will largely be dependent on continued investor confidence Malaysian financial regulation as well as economic data from the United States and China.
Key forecasts 2013-2014 (Oct-Mar):
- Kota Kinabalu is the only region forecasted to experience rent increases for office space over the forecast period, coming in at 5%
- Rental rates for retail spaces are forecasted to remain stable for all regions
- All regions are going to face increases of 5% for industrial rental rates
- The office sector is now over supplied especially following the completion of more than 12 major office developments in Klang Valley.
- Malaysia has moved up one ranking to 6th place in our Asian risk reward rating, in between Hong Kong and India.
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