New office buildings unlikely on Penang island due to glut

THERE is unlikely to be new purpose-built office building projects on the island in the near future in view of the glut of office space and high construction cost.

On the island, there is an overhang of 2.8 million sq ft of office space with occupancy rate of 74%, compared with about 72% in 2005.

The total available purpose-built office space in George Town as at end last year was about 11 million sq ft, a large portion of which is in purpose-built office buildings developed 10 to 15 years ago.

These properties are not in demand because they lack information technology (IT) infrastructure and facilities and are not well maintained.

Developers were also unwilling to launch more of such buildings due to the high construction cost.

The construction cost and land value for per square foot of commercial space is about RM210, while the selling price per sq ft of the commercial space is RM250 to RM300, which is less than the 30% profit margins generally looked for by developer.

Current rentals of conventional purpose-built office space on the island ranged between RM1.50 and RM2.50 per sq ft while the modern purpose-built office buildings with IT features command a rental of above RM3 per sq ft.

The modern purpose-built office building projects being developed on the island were now in Bayan Baru. They include the recently completed SunTech and the IJM headquarters in Metro-East.

The 23-storey RM100mil SunTech by Emerald Capital Group is almost 100% sold. “The building has the latest IT-MSC infrastructure and facilities. The rental is RM2.60 to RM4.20 per sq ft,” he said.

Demand for pre-war properties was slightly stronger as there was limited supply of such properties for commercial use.

Many of these houses are also highly sought after because they are strategically located on main roads.

The present value of a pre-war property in George Town is around RM600 per sq ft. A 3,200 sq ft pre-war property on Campbell Street was recently sold for about RM2mil.

On the retail sector that also faces a glut (occupancy rate is 70% compared with 72% in 2005), there was 13.9 million sq ft of retail space, of which 70% was occupied while new supply stood at 1.2 million sq ft.

The new retail space include such projects as Jusco in Bandar Perda, Penang Times Square, D'Piazza, Wikiworld, Mutiara Parade, Farlim Megamall, Gurney Plaza Phase 2, and Gurney Paragon.

The oversupply situation has not improved since 2005 as the market is still tough.

The rising cost of living and declining purchasing power have worsened the situation. Many Penangites will visit shopping centres during weekends, but their expenditures are expected to drop in the next few months.

Ground floor rentals ranged between RM9.50 per sq ft and RM30 per sq ft for malls in prime locations such as the Queensbay Mall and Gurney Plaza. Meanwhile, those in the heart of George Town ranged between RM4 per sq ft and RM28 per sq ft.

The average rental rate has remained more or less the same over the last few years.

The state government should work with the private sector to revive George Town by having new business themes for different precincts in the inner city.

The state government could offer incentives for businesses like traditional medicine, souvenir or local produce and designating certain streets in George Town for them.

This type of planning would help absorb the existing commercial properties in the inner city and enhance George Town’s appeal as a tourist hub.

Sustainable development, in the form of environmentally friendly policies, is key towards unlocking the value of commercial properties in George Town.

There was also a need for more parking facilities, improved drainage system to overcome flash flood, and quality public transport.

Mixed Messages About Investment Property in Malaysia

Malaysia is a hard one to call – on the one hand you have undeniable evidence that the mid-high end in the residential sector is doing very well, and on the other hand you have inflationary pressures impacting local affordability and demand. On top of this, analysts and experts on the real estate market in this Asian nation are all delivering mixed messages about investment property in Malaysia.

I thought I'll try and bring you a bit of clarity – although I am quite confused too! I am certain of Malaysia’s immediate appeal, I am certain of Malaysia’s strong tourism sector and I am also certain that the nation’s government is committed to keeping the foreign investment environment as healthy as possible. But is this enough to ensure a healthy landscape for property investors in Malaysia over the medium to longer term?

It is simply not true that the whole of the rest of the world is being negatively impacted by the dire state of the US economy – by the way, is it just me or has anyone else noticed just how quiet George W has been of late? The fact of the matter is, not every nation in the world is as dependent on the US economy as we are in the United Kingdom and Europe. Sure, Malaysia has a certain degree of exposure to the United States and indeed to other international markets which are also feeling the fiscal pinch, but it also has a strong economy that the government has worked hard to make relatively shock proof to external factors.

Having said that, the Malaysian economy is starting to stress from the impact of internal inflationary factors that are squeezing profit margins in the property sector for example. The fact that construction costs are rising as material and labour costs climb mean developers are reluctant to cut prices and do deals with buyers, and they are also reluctant to start new projects. On the one hand this is bad for those who want to buy in and drive a bargain…on the other hand it’s positive as a market with fewer starts can be a market where demand outstrips supply quite quickly, putting upside pressure on prices – excellent for those with investment property in Malaysia already then!

If you look at the tourism market in Malaysia – arrivals are up, spending is increasing. This is fantastic news for the nation’s economy, it has a strong impact on the property sector as well, and it suggests confidence in the country and gives investors further confidence that Malaysia is a market you can bank on for the longer term. Russian arrivals are up 50% year on year, British arrivals are up 24.5% and there are strong levels of interest in the ‘Malaysia: My Second Home Program.’ But at the same time, Aseambankers and other research houses and brokerages in the region have a neutral call on the real estate market in Malaysia – at least until after Umno’s party elections in December which are thought to be a reason for developers putting off new starts and also deterring some new investors entering the marketplace.

So, whilst there are inflation concerns and a short-term hold on expansion and development until after elections in Malaysia, it could be said that the outlook is shaky. But what about the fact that mortgage approvals hit a high in March and the higher end of the residential sector saw a 50% year on year increase in sales in the first quarter? See, it’s a confusing picture in Malaysia! My own opinion is that the market has fantastic fundamentals driving the long-term success of the mid to high end residential sector, that there are certain opportunities in the tourism sector and that Malaysia is one to watch. But that’s just my opinion – I could be wrong!

Residential Investments

Property-Bangsar Property
Bangsar has grown rapidly in recent years and is one of the best places to invest in Kuala Lumpur. House prices and rents are constantly increasing with the growth and popularity of Bangsar, making it a good property investment. There are only a few condominiums under construction to cater to the housing needs of the growing number people who wish to stay in there.

High capital growth, solid rental yields, strong demand and limited supply make this part of Kuala Lumpur a must for any serious property investor.