Expect resurgence in commercial real estate market
LUMPUR: The year 2023 has exhibited a reliable performance in both the economy and the real estate market.
Looking ahead in the commercial real estate market, Knight Frank Malaysia anticipates a relatively stable and prudently optimistic environment in 2024.
What factors contributed to the resilient performance of the economy and real estate market in 2023, and what specific indicators suggest a stable and cautiously optimistic outlook for the commercial real estate market in 2024?
Knight Frank Malaysia has released its latest publication, Malaysia Commercial Real Estate Investment Sentiment Survey (CREISS) for 2024.
The findings of CREISS include a close look at key players’ sentiments on market performance, sub-sector investment activity and factors impacting the market.
Last year, the property market in Malaysia continued to strengthen as evident during the first nine months of 2023, witnessing a total of 293,095 transactions amounting to RM142.5 billion. The transactions exhibited stability in volume, with year-on-year increase of 8.8 per cent in value.
Keith Ooi, group managing director of Knight Frank Malaysia, said, “2023 showcased a resilient performance for both the economy and the real estate market, setting the stage for a stable and cautiously optimistic outlook in 2024.
“The surge in demand for data centers in the APAC region, coupled with growing interest in alternative investments such as serviced residences and industrial parks, underpins the resurgence of the commercial real estate market post-pandemic.”
Factors affecting commercial real estate investment – 68 per cent of the respondents believe that foreign direct investments (FDI) will be more favourable due to better economic conditions.
FDI in Malaysia is dominated by the manufacturing sector and is expected to continue attracting manufacturing investment to the country due to the availability of an ecosystem and resources.
62 per cent believed that the Business Confidence Index (BCI) would be positive, attributed to a stable economic environment and anticipated future developments.
As for Budget 2024 and considering the government initiatives and policies, 60 per cent of the respondents find it neutral towards the commercial property market.
Amidst global challenges, a majority expresses optimism about Malaysia’s economic performance, digital evolution, and the real estate market, driven by factors such as a resilient labour market and positive consumer sentiments.
The favourable outlook on political stability further contributes to enhanced investor confidence on both domestic and international fronts.
According to Amy Wong, executive director of research and consultancy at Knight Frank Malaysia, she noted that respondents predict a positive increase in investments into the retail, healthcare, and educational/institutional subsectors in 2024.
However, minimal interest is observed in the office and industrial/logistics sub-sectors, while the hotel/leisure sector maintains a trend similar to that of 2023.
A look into respondents’ views on the investment landscape from 2024 to 2026 reveals a keen interest in serviced residences/ hotels, particularly in established areas like Klang Valley, Penang, and Sabah, driven by increased tourism and a resurgence in the hotel industry post-pandemic.
Industrial/business parks, especially in regions like Klang Valley, Penang, and Johor, are attracting investors exploring opportunities in logistics and industrial hubs amidst the rise of the digital economy.
Additionally, there’s a growing preference for alternative investments, with notable interest in sectors like co-living/ student accommodation, coworking/flexible office spaces, and the data centre industry, reflecting evolving trends in work preferences and technological advancements.
The 2024 performance forecast reveals optimistic expectations for the industrial and logistics sectors, with 62 per cent anticipating an increase in capital appreciation and 68 per cent foreseeing a positive outlook on yields in the logistics sub-sector.
While stability is predicted for office, retail, hotel/leisure, healthcare, and educational/ institutional sub-sectors, concerns exist for the office sub-sector due to potential decreases in capital value and yields of older assets, attributed to substantial supply impacting asset performances.
Furthermore, positive projections for rental values in industrial/logistics properties and the hotel/leisure industry are highlighted, but challenges, such as potential decrease in office rents and occupancy rates in older buildings, are noted, particularly in the face of significant incoming supply in the Klang Valley office market, as mentioned by Wong.
Considering the resilient economic recovery and the looming geopolitical risks, the performance of the property market is expected to be moderate in 2024.