Boston, MA -- (SBWIRE) -- 05/22/2014 -- Overall, BMI has a positive outlook for the Malaysian commercial real estate sector and we expect the market to remain relatively stable over the next two years. The main risk to our short term forecasts stems from a slow-down in China affecting export oriented sectors and employment which would flow on to impact rental rates in both the industrial and retail sectors in particular. Additionally, local sources are reporting a mismatch of investor specifications and new developments as well as an over-supply of office space. Over the longer term positive demographic factors and increased tourism are looking to support the retail segment.

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There are strong downside risks to our forecasts; with an estimated 17mn 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.

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 urbanised 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 2015

- Kota Kinabalu is the only region forecasted to experience rent increases for office space over the forecast period, coming in at 5%, whilst Kuala Lumpur is going to remain the same and Johor Bahru is going to decrease 5%.
- Rental rates for retail spaces are forecasted to remain stable for Kuala Lumpur and Kota Kinabalu. Johor Bahru on the other hand is going to face increases of 20-25%.
- Similarly, industrial rental rates are going to remain stable in Kuala Lumpur and Kota Kinabalu whilst Johor Bahru on the other hand is going to face increases of 5-8%.

Key developments

- Ahmad Zaki Resources Bhd (AZRB) plans to start work on the MYR1.5bn Kuala Lumpur Outer Ring Road (KLORR) in the second half of 2014. The company had received the letter of intent for the project in 2008 to construct a 36km stretch from Sungai Long to International Islamic University Malaysia in Gombak.
- Construction and Completion of the Commercial Office Buildings and External Works at Lot 2C5, Precinct 2, Putrajaya At MYR315mn.

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