Research

Real Estate Highlights

Kuala Lumpur - Penang - Johor Bahru 2nd Half 2006
Contents

Kuala Lumpur
High End Condominium Market Office Market Retail Market 2 5 7

Penang Property Market Johor Bahru Property Market

10 11

Retail

Residential
Executive Summary

Office

Kuala Lumpur In the second half of 2006, the high end condominium market performed better in the Bangsar and Mont Kiara suburbs than in the KLCC locality. Government measures to relax restrictions on foreign purchases of residential properties in the country are expected to further stimulate sales in the high end market. Strong demand for prime offices was reflected in the improvements in their occupancies and rental rates. The lack of prime office supply has seen more refurbishment exercises being undertaken by owners of existing secondary office buildings. The launch of Visit Malaysia Year (VMY) 2007 will undoubtedly spur higher spending from the projected increase in tourist arrivals and this augurs well for the retail industry. Two shopping complexes were injected into REITs in the second half of the year. Penang The luxurious condominium market is currently active with 13 new high end projects showing good sales rate. Queensbay Mall, offering a net lettable area of 1.2 million sq ft, opened in December 2006. Johor The market was subdued in the last six months of 2006 compared to the first half of the year, both in terms of the volume and pricing of transactions. The average occupancy of offices and shopping complexes remained at 64% and 65% respectively.

Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru 2nd Half 2006

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Kuala Lumpur High End Condominium Market

Market Indications Governments move to relax the rules for foreigners to purchase residential properties in the country is expected to further stimulate growth in the high end market
The overall economy and the property sector has benefited following the stabilisation of crude oil price in the region of US$50 to US$60 per barrel in the second half 2006 after peaking at US$80 per barrel in July. Commercial interest rates, which was raised during the first half of 2006 as a result of increase in the Base Lending Rate (BLR), was lower towards the end of the year as there was no further hikes by Bank Negara Malaysia. The Kuala Lumpur Composite Index (KLCI) too reached new high and recorded above 1,000 points. The property market was generally stable with selected projects in the suburbs achieving sales above initial expectation whilst the market in the KLCC area continued to be relatively softer. The Governments move to relax the rules for foreigners to purchase residential properties in the country is expected to further stimulate sales in the high end condominium market. Effective from 21st December 2006, foreigners can purchase properties worth RM250,000 and above without seeking approval from the Foreign Investment Committee and there will be no limitation in terms of the number of units that can be owned. This is anticipated to encourage higher number of foreign investment in high end residential properties.

Supply & Demand

Generally, the market in second half of 2006 performed better compared to the weaker market in the first half of 2006 especially projects located in the suburbs of Mont Kiara and Bangsar. A total of 977 new high end condominium/serviced apartment units were launched during this period, and take up was reported to be encouraging, recording average sales rate between 70% and 80% for new launches in the second half of 2006 for selected projects. The only project that was launched in the city area was U-Thant Residence, developed by Tan & Tan Developments. This project is reported to have achieved more than 90% sales with only Bumiputera reserved units available. Several launches were noted in the Mont Kiara and Bangsar areas, namely One Menerung, Casa Kiara II, 10 Mont Kiara, Zehn and Centrio. In the Bangsar locality, One Menerung had set a new benchmark in pricing at an average of RM750 per sq ft. One Menerung is developed by Bandar Raya Developments with a total of 229 units. It is located nearby commercial facilities such as Bangsar Shopping Complex and Damansara Town Centre.
Illustration of Zehn Bukit Pantai

Several projects in the Mont Kiara and Bangsar localities are reported to have reached more than 75% sales status possibly attributed to the high quality product and reasonable pricing.

Generally, the market in second half of 2006 performed better compared to the weaker market in the first half of 2006 especially projects located in the suburbs of Mont Kiara and Bangsar

Juta Asia Properties Sdn Bhd has collaborated with CapitaLand to develop Zehn which is located at Bukit Pantai, Bangsar. The branding with CapitaLand, a well-knowned developer in South-East Asia with excellent track record, has boosted the sales of the project and Zehn recorded 65% sales rate for its first tower since its soft launch in September 2006.

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Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru 2nd Half 2006

Figure 1

Projection of High End Condominium Supply around KLCC

10,000 9,000 8,000

Centrio, is a mixed commercial development located at Pantai Hillpark and developed by YTL Land. It offers 268 units of Small Office Home Office (Soho). YTLs corporate branding and good track record is the reason for Centrio recording a sales rate of 75% within two months of launch.

Table 1: High End Condominium / Serviced Apartment Projects Launched in 2H2006

Total Project Location Jalan Madge Jalan Kiara 3 Jalan Kiara 1 Jalan Bukit Pantai Area Ampang Hilir Mont Kiara Mont Kiara Bangsar Unit 77 206 332 187 Developer Tan & Tan Developments Sunway City Berhad Sunrise Berhad Juta Asia Properties (in collaboration with CapitaLand) Centrio Pantai Hill Park Pantai 268 YTL Land U-Thant Residence Casa Kiara II 10 Mont Kiara Zehn

7,000
Number of Unit

6,000 5,000 4,000 3,000 2,000 1,000

Future 2002 2003 2004 2005 2006 2007 2008

It is anticipated that 881 units of high end residential will be launched in the first half of 2007. Kuala Lumpur City will see more launches with some new players entering the market such as Oval Residences Sdn Bhd with The Oval and Mezzon Development Sdn Bhd with Icon Kuala Lumpur. Mont Kiara, which has always been active in the high end residential sector, will possibly see only one new launch in the first half of 2007. The new launch, Radiant Kiara developed by YNH Property Bhd, which was initially scheduled for launch in the second half of 2006 as Ceriaan Kiara, will now be launched in first half of next year and re-named as Radiant Kiara.

New Supply
Source: KF Research

Cumulative Supply

Table 2: Possible High End Condominium / Serviced Apartment Projects to be Launched in 1H2007
Total Project The Oval Location Jalan Binjai Area KLCC Unit 140 Developer Oval Residences Sdn Bhd (formerly known as Kool Growth Sdn Bhd) Hampshire Place Icon Kuala Lumpur K4 Ken Bangsar Serviced Residences Sunway Sri Hartamas Jalan Sri Hartamas Sri Hartamas 160 Sunway City Berhad Persiaran Hampshire Jalan Yap Kwan Seng Changkat Duta Kiara Jalan Kapas Bangsar 80 Ken Holdings Berhad KL City KL City Mont Kiara 183 80 605 Hampshire Properties Sdn Bhd Mezzon Development Sdn Bhd Amatir Resources Sdn Bhd

Illustration of Icon Kuala Lumpur

Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru 2nd Half 2006

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Prices & Rentals Rentals in Kuala Lumpur City improved slightly during 2006 due to lack of existing good quality condominiums
Rentals in Kuala Lumpur City improved slightly during 2006 due to lack of existing good quality condominiums. Despite the high number of potential supply of high end residential, capital values for existing condominiums in Kuala Lumpur City and Ampang areas trended marginally upwards.

Table 3: Rentals and Prices of Existing High End Condominiums

Locality KL City Ampang Hilir / U-Thant Damansara Heights Kenny Hills Bangsar Mont Kiara Gross Rent (RM psf / month) 3.00 5.00 2.50 4.70 3.40 4.50 2.50 4.00 2.60 4.50 2.50 4.00 Capital Values (RM psf) 450 750 400 650 450 600 500 600 400 650 400 600

Outlook
The Malaysian economic climate in 2007 is expected to improve with the stabilisation of global oil prices, local interest rates and inflation. These, together with the relaxation of Government ruling allowing foreigners to purchase residential properties without seeking approval from FIC, will have a positive effect on the high end condominium market especially in the KLCC area which suffered in 2006 from the twin effects of economic uncertainties and selective demand. The existing regime of rentals in the Kuala Lumpur City area are likely to be pressured as more units are completed in 2007 and investors compete to get their units tenanted.

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Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru 2nd Half 2006

Figure 2

Occupancy and Rental Trend

(2000 2006)

Kuala Lumpur Office Market

Market Indications
The stronger demand for prime office space is indicated by the improvement in occupancy from 84% in the first half of the year to 86% in the second half. Rental rates and capital values have also increased, which is
Gross Rental (RM psf)

84

5.40 5.20 5.00 4.80

82

80
Occupancy (%)

attributed to the tighter availability of prime office space available in KL city centre. Economic confidence was reflected in expanding businesses taking up more space, leading to rising rents. Investment funds see this trend as an opportunity to secure good returns, contributing to the increasing capital values. Prime net yield is in the region of 6.5% to 7% which are reflected in the current office REITs. Competition for prime office space has seen more refurbishment being undertaken by owners of existing secondary office buildings. Some of the buildings that are currently under refurbishment are the Lee Rubber Building, Bangunan MOCCIS along Jalan Melaka and Bangunan Kuwasa at Jalan Raja Laut. Upgrading of these buildings is necessary to retain the existing tenants and attract new ones as facilities will be upgraded and the physical condition of the offices enhanced.

78 4.60 76 4.40 74 4.20 4.00 3.80

72

2000

2001

2002

2003

2004

2005

Occupancy Rate
Source: KF Research

Gross Rental

2006

70

Supply & Demand

Office space in Federal Territory increased to 64 million sq ft. Total supply of office space in KL City stands at

The stronger demand for prime office space is indicated by the improvement in occupancy from 84% in the first half of the year to 86% in the second half

39 million sq ft, whilst Decentralized KL (Damansara Heights, Bangsar, Mid Valley and KL Sentral) accounts for 9 million sq ft. In Decentralized KL, a few new office buildings entered the market offering a total of 1.09 million sq ft. These are Plaza Sentral Phase 2 consisting of 4 blocks of strata offices (649,500 sq ft), Wisma Perintis along Jalan Dungun (160,000 sq ft) and Plaza Cygal in Pantai Bahru (280,000 sq ft). Coming on stream in 2007 will be YNHs development on Lot 170 along Jalan Perak (190,250 sq ft), Centrepoint in Mid Valley City (450,000 sq ft) and Menara TSH in Damansara Heights (125,000 sq ft), contributing a total of 765,250 sq ft to KL Citys office supply. In KL City, occupancy was recorded at 86%, which represents an increase of 2% from the first half of the year. Demand for office space is equally strong in Decentralized KL, where overall occupancy improved to 90% from 88% in the first half of the year. The major occupations were MNI in Dataran Maybank and Maxis into the newly completed Plaza Sentral Phase 2, KL Sentral, occupying some 153,000 sq ft. Integrated commercial developments comprising office, retail and entertainment/leisure components have attracted more interest from office occupiers in recent years. This was reflected in the good occupancy rates shown by offices such as Menara IGB in Mid Valley City and Plaza Sentral in KL Sentral. The demand for prime office space is led by the expansion in the oil & gas and business outsourcing sectors

Decentralized KL: KL Sentral

followed by the financial services sector. The second half of the year saw two good quality investment grade office buildings namely UOA Bangsar and Menara ING (major strata portion) being injected into the UOA REIT and Tower REIT respectively.

Demand for office space is equally strong in Decentralized KL, where overall occupancy improved to 90%

Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru 2nd Half 2006

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Figure 3

Capital Values and Gross Yield Trend

(2000 2006)

Rentals & Capital Values

Prime office capital values have been driven up by investors due to the limited number of good quality

700

14.00

investment grade buildings available for sale in the market. Rentals for prime office space are trending upwards and current prime asking rentals range from RM5.50 to RM7.50 per sq ft, excluding the Petronas Twin Towers which have exceeded RM10.00 per sq ft. A total of 6 office buildings were transacted in the second half of the year, which is a testimony to investor confidence in the office market. Wisma UOA was injected into the UOA REIT in mid 2006 whilst Menara ING (major strata portion) was acquired by Tower
Gross Yield (%)

600

12.00

Capital Value (RM psf)

500

10.00

400

8.00

REIT in October last year with reported gross yields of 9.9% and 10% respectively. Office sales in KL City have registered capital values between RM466 per sq ft to RM554 per sq ft. Block 1A in Lot M of KL Sentral, completed in the second half of 2006 was sold to KWSP at RM525 per sq ft and leased to Maxis for a period of 15 years.

300

6.00

200

4.00

100

2.00

Table 4: Office Investment Sales in 1H2006

Building Name Location Bangsar Jalan Tun Razak Changkat Raja Chulan Jalan Raja Chulan Jalan Sultan Ismail KL Sentral KL Sentral Approx. Lettable Area (sq ft) Wisma UOA Empire Tower Menara Aik Hua Menara ING Kenanga International Lot M Office Building
* Total strata floor area transacted

Consideration (RM) / (RM psf) 21,000,000 (480) 270,000 (466) 36,102,530 (305) 75,000,000 (495) 165,000,000 (554) 80,036,250 (525) 147,500,000 (525)

2000

2001

2002

2003

2004

2005

2006

0.00

43,743 580,000 118,446 * 151,395 297,511 152,450 280,890

Capital Value
Source: KF Research

Gross Yield

Prime office capital values have been driven up by investors due to the limited number of good quality investment grade buildings available for sale in the market

Table 5 : Selected Grade A Office Asking Rentals

Asking Gross Rental (RM psf) per month Menara Maxis Menara Prudential Menara IMC Menara Dion Rohas Perkasa Menara Citibank Menara Standard Chartered Menara MNI Twins Menara HLA Menara Millenium 7.50 7.00 7.00 6.00 5.50 6.70 5.50 5.50 5.50 5.00

Outlook
Prime offices are becoming increasingly short in supply particularly in the KL city centre. As a result, rents are rising and this has encouraged more secondary buildings to embark on refurbishment exercise in order to remain competitive in todays dynamic office market. We anticipate overall office occupancy to
Petronas Twin Towers, KLCC

move up by another 2% to 3% next year contributed by better occupancy in refurbished secondary buildings following near full occupancy in prime buildings.

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Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru 2nd Half 2006

Figure 4

Supply and Occupancy Trend

(2000 2006)

Klang Valley Retail Market

Market Indications
The overall retail market sales turnover projection for 2006 was revised upwards from 7% to 7.5% by the Malaysian Retailers Association (MRA), indicating a year of impressive expansion compared to 6% growth in 2005. Growth was led by the supermarket and hypermarket sector which in the first half of 2006, recorded
Occupancy (%)

35,000

92 90 88 86

30,000

25,000
Supply ('mil sq ft)

20,000 84 15,000 82 10,000 80 78 76

a 9.5% growth. With consumers adjusting to the rising prices, the retail market looks promising. Major prominent shopping centres showed improvements in take up and occupancy due to aggressive expansion from retailers, particularly, large space occupiers such as hypermarkets, supermarkets and departmental stores. The launch of Visit Malaysia Year (VMY 2007) will undoubtedly spur higher spending from the increasing tourist arrivals and this augurs well for the retail industry. Domestic consumer spending is also anticipated to rise as consumer sentiments improve, as measured by MIERs Consumer Sentiments Index (CSI). The CSI is still holding up from 104.2 points in 2Q06 to 107.5 points in 3Q06. The retail investment market was also boosted with the listing of the Hektar REIT in November 2006 with the 280,000 sq ft Subang Parade and 471,400 sq ft Mahkota Parade in Selangor and Melaka respectively. Plans are abound for the injection of more retail complexes into the said REIT, including a proposed

5,000

2000

2001

2002

2003

2004

2005

Net Lettable Area

Source: KF Research

Occupancy Rate

The launch of Visit Malaysia Year (VMY) 2007 will undoubtedly spur higher spending from the increasing tourist arrivals and this augurs well for the retail industry

2006

shopping complex in Bandar Nusajaya, Johor.

Supply & Demand

In the Klang Valley, two shopping complexes and one hypermarket opened for business in the last six months. The two complexes were developed by Aeon Co (M) Bhd and known as Aeon Taman Equine and Aeon Cheras Selatan whilst Mydin opened its first hypermarket in Subang.

Table 6: Shopping Complex Openings in 2H2006

Net Lettable Project Aeon Centre Aeon Centre Mydin Location Taman Equine Cheras Selatan Subang Jaya Area Serdang Balakong Subang Area (sq ft) 292,000 368,000 280,000 Developer Aeon Co (M) Bhd Aeon Co (M) Bhd Mydin Mohamed Holdings Bhd

The completion of new complexes brings the total retail stock in Selangor to about 18.5 million sq ft. In Kuala Lumpur, no new completion was noted for the second half of the year and the supply stands at 20.4 million sq ft. Occupancy has generally improved with new take-up observed in existing prime complexes such as Berjaya Times Square, Lot 10, One Utama Phase 2 and Mid Valley Megamall.
Prime shopping complex: Suria KLCC

Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru 2nd Half 2006

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Figure 5

Retail Sales Growth Trend

(2000 2006)

Berjaya Times Square has increased in occupancy following the entry of new tenants such as Ampang Super Bowl, Nichii Fashion City, Best Denki, Cold Storage and Metrojaya. New take-up and tenants were also noted in Lot 10, One Utama Phase 2 and Mid Valley Megamall from the franchised Gap stores by Singapore-based retailer FJ Benjamin Holdings Ltd. The average Klang Valley retail occupancy for 2006 was 85%. The occupancy in KL City was noted to be marginally better than the suburbs, at 85% and 84% respectively.

12

10
Retail Sales Growth (%)

This second half of the year also saw several prominent players announce store expansion plans. Carrefour
6

plans to open two outlets in the Klang Valley in 2007 and another outlet in Tropicana Mall in 2008. The aggressive expansion by hypermarket players was echoed by the Domestic Trade and Consumer Affairs Ministry whereby an average of 15 applications are received annually from foreign hypermarket investors. Department store player, Jusco, will open another outlet in Sunway Pyramid Phase 2 and the Aeon shopping complex (currently under construction) in Bukit Tinggi, Klang, by the end of 2007. Next year will see more shopping complexes being completed and this will substantially increase the supply as most of these are large complexes. In KL City, Bangsar Village Phase 2 is due to open in the first quarter of 2007 whilst The Pavilion is scheduled for opening by third quarter of 2007. KL Pavilion is reported to have a take-up of about 70% to date. In the suburbs, Sunway Pyramid Phase 2 is targeted for opening in September 2007 whilst Aeon Bukit Tinggi will open in November.

2000

2001

2002

2003

2004

2005

Source: KF Research

Faced with stiff competition from new complexes, older and dated shopping complexes are now undertaking or planning refurbishment works as part of their re-theming or repositioning exercise

2006 (e)

Table 7: Shopping Complex Scheduled for Opening in 2007

Net Lettable Project Bangsar Village (Phase 2) The Gardens The Pavilion KL Sunway Pyramid (Phase 2) Aeon Centre Bukit Tinggi Klang 1.0 million Aeon Co (M) Bhd Mid Valley City Jalan Bukit Bintang Jalan PJS11/15 Fringe of KL City KL City Bandar Sunway 800,000 1.40 million 900,000 IGB Corporation Malton Group Sunway Group Location Jalan Telawi Area Bangsar Area (sq ft) 200,000 Developer Eng Lian Enterprise

Faced with stiff competition from new complexes, older and dated shopping centres are now undertaking or planning refurbishment works as part of their re-theming or repositioning exercise. For instance, the 30-year old Bukit Bintang Plaza, which is located in the prime and busy retail district of Bukit Bintang, will undergo a RM15 million upgrading. In the suburbs, the retail space at Menara Bakti, Section 14, Petaling Jaya (previously occupied by Metrojaya) has undergone upgrading and re-theming exercise and launched in January 2007 as Digital Mall.

Bukit Bintang Plaza: will undergo upgrading works in 2007

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Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru 2nd Half 2006

Prices & Rentals

In the Klang Valley, two shopping centres were transacted in the second half of this year namely City Square along Jalan Tun Razak in Kuala Lumpur and Subang Parade in Subang Jaya. The City Square Shopping Centre was transacted at RM561 per sq ft in August 2006 to Macquarie Pacific Star Prime REIT Management Ltd and was sold together with Crown Princess Hotel and Empire Tower. In November of this year, Subang Parade was transacted at RM592 per sq ft to Hektar REIT. In the month of December, Landmarks Berhad had also announced a proposed divestment of the remaining strata lots in Sungei Wang Plaza to Kencana Property Management Sdn Bhd for cash consideration of RM284.8 million (RM602 per sq ft). This transaction is pending completion and may be concluded in 2007. Rentals for ground floor and first floor specialty stores in prime centres had remained unchanged in the last six months of 2006, hovering between RM30.00 to RM40.00 per sq ft per month in centres such as Suria KLCC, Mid Valley Megamall and Sungei Wang Plaza whilst the upper levels were between RM10.00 to RM20.00 per sq ft per month.

Outlook
2007 promises to be an exciting year for the retail industry with the offering of more innovative retail centres, new stores and new brands. Coupled with VMY 2007, retail growth is projected at 8%.
Prime shopping complex: Sungei Wang Plaza

However, average occupancy in the Klang Valley will dip due to the significant potential new supply over the next 12 months. Rents are projected to remain competitive but stable.

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Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru 2nd Half 2006

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Infrastructure projects under the 9th Malaysian Plan (9MP) are expected to have a major impact on the Penang property market
Figure 6

Penang Property Market

Market Indications
Infrastructure projects under the 9th Malaysian Plan (9MP) are expected to have a major impact on the Penang property market. The effects will be more apparent as the implementation of the second bridge and Penang Outer Ring Road and possibly the monorail progresses.
The 24 kilometre second bridge estimated to cost RM2.8 billion has been awarded to UEM Group is scheduled for completion in 2011. The PORR project costing RM1.02 billion has been awarded to Peninsular Metroworks Sdn Bhd. RM1.2 billion monorail project will start from Pengkalan Weld to Paya Terubung via Datuk Keramat and Air Itam.

Office Supply and Occupancy Trend in Georgetown

(2000 2006)

8,000 7,000 6,000

Supply ('mil sq ft)

80 78 76 74
Occupancy (%)

High End Condominiums

The luxurious condominium market is currently active with 13 high end projects under construction, totaling 2,274 units. Projects launched in 2006 were Baystar Semi-D Condominium and two super condo projects namely Kelawei View and Skyhomes which have attracted healthy sales. Newly launched projects are priced from RM250 to RM350 per sq ft whilst super condos are priced higher at RM350 per sq ft to RM540 per sq ft. Projects due to be completed next year are Bayswater Resort Condominium, The Cove and The View.

5,000 72 4,000 70 3,000 68 2,000 1,000 0 66 64 62

Offices
Penangs supply of office space is mainly concentrated in Georgetown which houses 7.1 million sq ft or 86% of the total stock. Better quality office buildings with good facilities have recorded occupancies of above 70%. Menara Great Eastern, an office development along Jalan Light is currently under construction and due for completion in 2007 and will increase supply by 80,000 sq ft. Market rentals for offices remain stable due to the abundance of supply in the market, with prime buildings commanding an average of RM2.30 per sq ft per month. Three purpose built office buildings changed hands in 2006 and they were Wisma John Hancock for RM4.4 million (RM114 per sq ft), Menara UMNO for RM18 million (RM221 per sq ft) and the latest Wisma PSCI which was sold to Boustead Holdings for RM54 million (RM255 per sq ft). Capital values for prime offices range from RM220 to RM260 per sq ft whilst secondary offices average around RM110 to RM150 per sq ft.

2000

2001

2002

2003

2004

2005

Supply
Source: KF Research

Occupancy

Market rentals for offices remain stable due to the abundance of supply in the market, with prime buildings commanding an average of RM2.30 per sq ft per month

2006

Retail
The supply of retail space in Penang Island stands at 7 million sq ft with the latest addition of Queensbay Mall in December 2006, offering a net lettable area of 1.2 million sq ft. The current average occupancy is 81%. Gross rentals for ground floor specialty store retail space in main shopping centres are improving, ranging from RM15.00 to RM25.00 per sq ft per month. No recent sales of en-bloc shopping centre were recorded whilst strata capital values have consolidated between RM450 to RM1,450 per sq ft for ground floor shops.

Outlook
The newly opened Queensbay Mall

New launches of high end condominiums will be entering an increasingly competitive market where buyers are spoilt for choice. The office market will continue to remain neutral, though prime offices are poised to fare better. The retail market will be competitive as shoppers are becoming more discerning of the concept, tenant and trade mix of shopping centres.

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Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru 2nd Half 2006

11

The preferred residential locations are projects at Tebrau and Skudai Development Corridors

Johor Bahru Property Market

Market Indications
Johor is one of the main beneficiaries of the economic pump priming initiatives by both the State and Federal Governments under the 9th Malaysia Plan (9MP) and the expectations for strong and sustainable growth through economic revival are evident. Notable capital injections into Johors economy include:
The proposed 2,217 sq km Iskandar Development Region (IDR) at Nusajaya drawing RM47 billion worth of investments from 2006 to 2010 to generate an average GDP growth of 8%. RM10.2 billion allocated for Johor under 9MP. Infrastructure works interchanges at Skudai, Perling and Pandan are currently under construction, Senai-Desaru Highway, Coastal Highway, the Eastern Dispersal Link (EDL), and Mass Rapid Transport (MRT) or Monorail system etc. Expansion drive in the development of Port Tanjung Pelepas, Senai Airport and Tanjung Langsat Complex.

Illustration of semi-d houses at Taman Impian Emas

Figure 7

The spill over effect of the development of two Integrated Resorts (IRs) in Singapore is anticipated to boost

Office Supply and Occupancy Trend in Johor Bahru

(2000 2006)

the earning power of Malaysian workers working in Singapore but residing in JB.

Residential

Occupancy (%)

8,000 7,000 6,000

Supply ('mil sq ft)

70

The market remained subdued for 2H2006 compared to the earlier half of the year, both in terms of the volume and pricing of transactions. Sales from primary market (developers sales) are more attractive compared to secondary market (sub/re-sales) due to new contemporary design of the units and better amenities. The preferred residential locations are projects at Tebrau and Skudai Development Corridors. High-rise units are gaining acceptance by the market, especially apartments at strategic locations which offer comprehensive facilities and priced at an average of RM150,000 per unit for an average size of 900 sq ft.

68

5,000 4,000 3,000 2,000 1,000 0

66

64

62

60

Offices
Purpose-built office space available for occupation by the private sector totals 5.9 million sq ft with an average occupancy of 64%. Rental rates have stagnated at a two-tier level averaging RM2.30 per sq ft per month for prime space and RM1.50 per sq ft per month for older offices or those outside prime locations.

2000

2001

2002

2003

2004

2005

Supply
Source: KF Research Figure 8

Occupancy

2006

58

Retail Supply and Occupancy Trend in Johor Bahru

(2000 2006)

Retail
The supply of retail space from shopping centres in Johor Bahru totals about 8.2 million sq ft with average occupancy hovering around 65%. Downtown shopping centres are faring much better with occupancy in excess of 85%. The prime City Square JB is achieving near full occupancy. No substantial movement in retail rental rates except at City Square JB where rentals have increased since the shopping complex was sold to the new owner. Prime rents at these successful centres fall in the region of RM15 to RM25 per sq ft. The trend of decentralisation for shopping centres in JB is gaining momentum with the opening of hypermarkets around the densely populated areas at the peripheral of the city with mega mall such as Aeon Tebrau City at Desa Tebrau.

9,000 8,000 7,000

66 64 62

Supply ('mil sq ft)

5,000 4,000 3,000

60 58 56

2,000 1,000
2000 2001 2002 2003 2004 2005 2006

Occupancy (%)

6,000

54 52

Outlook
The overall property market in Johor Bahru is not expected to show any marked improvement in the short term as the economic benefits of the pump priming programmes will take some time to be translated into demand. The market for residential units will continue to be competitive. The office and retail markets will remain relatively flat.

Supply
Source: KF Research

Occupancy

Research

Malaysia Contacts Eric Y H Ooi Managing Director eric.ooi@my.knightfrank.com Chong Teck Seng Executive Director Agency Services teckseng.chong@my.knightfrank.com Zaharin Bin Ahmad Zamani Executive Director Management Services zaharin.zamani@my.knightfrank.com Sarkunan Subramaniam Executive Director Advisory Services sarky.s@my.knightfrank.com Tan Wei See Executive Director Advisory Services weisee.tan@my.knightfrank.com Leslie J H Kho Resident Director Johor Bahru Branch leslie.kho@my.knightfrank.com Tay Tam Resident Director Penang Branch tam.tay@my.knightfrank.com

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