Knight Frank h 206

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Research Real Estate Highlights Kuala Lumpur - Penang - Johor Bahru • 2nd Half 2006 Contents Kuala Lumpur High End Condominium Market 2 Office Market 5 Retail Market 7 Penang Property Market 10 Johor Bahru Property Market 11 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. Residential Office Executive Summary Retail

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Transcript of Knight Frank h 206

Page 1: Knight Frank h 206

Research

Real Estate HighlightsKuala Lumpur - Penang - Johor Bahru • 2nd Half 2006

Contents

Kuala Lumpur

• High End Condominium Market 2

• Office Market 5

• Retail Market 7

Penang Property Market 10

Johor Bahru PropertyMarket 11

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.

Residential Office

Executive Summary

Retail

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Kuala Lumpur High End Condominium MarketMarket Indications

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 Government’s 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.

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.

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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“Government’s 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”

“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”

Illustration of Zehn Bukit Pantai

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Knight Frank 3Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru • 2nd Half 2006

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). YTL’s 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 Area Unit Developer

U-Thant Residence Jalan Madge Ampang Hilir 77 Tan & Tan Developments

Casa Kiara II Jalan Kiara 3 Mont’ Kiara 206 Sunway City Berhad

10 Mont’ Kiara Jalan Kiara 1 Mont’ Kiara 332 Sunrise Berhad

Zehn Jalan Bukit Pantai Bangsar 187 Juta Asia Properties (in

collaboration with

CapitaLand)

Centrio Pantai Hill Park Pantai 268 YTL Land

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.

Table 2: Possible High End Condominium / Serviced Apartment Projects to be Launched in 1H2007 Total

Project Location Area Unit Developer

The Oval Jalan Binjai KLCC 140 Oval Residences Sdn Bhd

(formerly known as Kool

Growth Sdn Bhd)

Hampshire Place Persiaran Hampshire KL City 183 Hampshire Properties

Sdn Bhd

Icon Kuala Lumpur Jalan Yap Kwan Seng KL City 80 Mezzon Development

Sdn Bhd

K4 Changkat Mont’ Kiara 605 Amatir Resources Sdn Bhd

Duta Kiara

Ken Bangsar Serviced Jalan Kapas Bangsar 80 Ken Holdings Berhad

Residences

Sunway Sri Hartamas Jalan Sri Hartamas Sri Hartamas 160 Sunway City Berhad

Illustration of Icon Kuala Lumpur

Figure 1

Projection of High End Condominium Supply around KLCC

Source: KF Research

0

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New Supply Cumulative Supply

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Prices & Rentals

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 CondominiumsLocality Gross Rent (RM psf / month) Capital Values (RM psf)

KL City 3.00 – 5.00 450 – 750

Ampang Hilir / U-Thant 2.50 – 4.70 400 – 650

Damansara Heights 3.40 – 4.50 450 – 600

Kenny Hills 2.50 – 4.00 500 – 600

Bangsar 2.60 – 4.50 400 – 650

Mont’ Kiara 2.50 – 4.00 400 – 600

OutlookThe 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.

“Rentals in Kuala Lumpur City improved slightly during 2006 due to lack of existing good quality condominiums”

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Knight Frank 5Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru • 2nd Half 2006

“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”

Kuala Lumpur Office MarketMarket 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

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.

Supply & Demand

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

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 YNH’s 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 City’s 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

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%”

Decentralized KL: KL Sentral

Figure 2

Occupancy and Rental Trend(2000 – 2006)

Source: KF Research

Occ

upan

cy (

%)

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72

74

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84

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enta

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sf)

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Occupancy Rate Gross Rental

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“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”

Rentals & Capital Values

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. 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

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.

Table 4: Office Investment Sales in 1H2006Building Name Location Approx. Lettable Consideration (RM) /

Area (sq ft) (RM psf)

Wisma UOA Bangsar 43,743 21,000,000 (480)

Empire Tower Jalan Tun Razak 580,000 270,000 (466)

Menara Aik Hua Changkat Raja Chulan 118,446 36,102,530 (305)

Menara ING Jalan Raja Chulan * 151,395 75,000,000 (495)

Kenanga International Jalan Sultan Ismail 297,511 165,000,000 (554)

Lot M KL Sentral 152,450 80,036,250 (525)

Office Building KL Sentral 280,890 147,500,000 (525)

* Total strata floor area transacted

Table 5 : Selected Grade A Office Asking Rentals Asking Gross Rental

(RM psf) per month

Menara Maxis 7.50

Menara Prudential 7.00

Menara IMC 7.00

Menara Dion 6.00

Rohas Perkasa 5.50

Menara Citibank 6.70

Menara Standard Chartered 5.50

Menara MNI Twins 5.50

Menara HLA 5.50

Menara Millenium 5.00

OutlookPrime 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 today’s dynamic office market. We anticipate overall office occupancy to

move up by another 2% to 3% next year contributed by better occupancy in refurbished secondary

buildings following near full occupancy in prime buildings.Petronas Twin Towers, KLCC

Figure 3

Capital Values and Gross Yield Trend(2000 – 2006)

Source: KF Research

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psf

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0.00

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“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”

Klang Valley Retail MarketMarket 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

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 MIER’s 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

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 Location Area Area (sq ft) Developer

Aeon Centre Taman Equine Serdang 292,000 Aeon Co (M) Bhd

Aeon Centre Cheras Selatan Balakong 368,000 Aeon Co (M) Bhd

Mydin Subang Jaya Subang 280,000 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

Figure 4

Supply and Occupancy Trend(2000 – 2006)

Source: KF Research

Sup

ply

('m

il sq

ft)

0

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upan

cy (

%)

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2003

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2006

Net Lettable Area Occupancy Rate

76

78

80

82

84

86

88

90

92

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“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”

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.

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

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.

Table 7: Shopping Complex Scheduled for Opening in 2007 Net Lettable

Project Location Area Area (sq ft) Developer

Bangsar Village Jalan Telawi Bangsar 200,000 Eng Lian Enterprise

(Phase 2)

The Gardens Mid Valley City Fringe of KL City 800,000 IGB Corporation

The Pavilion KL Jalan Bukit Bintang KL City 1.40 million Malton Group

Sunway Pyramid Jalan PJS11/15 Bandar Sunway 900,000 Sunway Group

(Phase 2)

Aeon Centre Bukit Tinggi Klang 1.0 million Aeon Co (M) Bhd

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

Figure 5

Retail Sales Growth Trend(2000 – 2006)

Source: KF Research

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Prime shopping complex: Sungei Wang Plaza

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.

Outlook2007 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%.

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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Penang Property MarketMarket 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.

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.

Offices• Penang’s 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.

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.

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

“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”

The newly opened Queensbay Mall

Figure 6

Office Supply and Occupancy Trend in Georgetown(2000 – 2006)

Source: KF Research

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il sq

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%)

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

Johor Bahru Property MarketMarket 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 Johor’s 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.

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

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

Residential• 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.

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.

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.

OutlookThe 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.

Illustration of semi-d houses at Taman Impian Emas

Figure 8

Retail Supply and Occupancy Trend in Johor Bahru(2000 – 2006)

Source: KF Research

Supply Occupancy

Sup

ply

('m

il sq

ft)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

0 52

54

56

58

60

62

64

66

Occ

upan

cy (

%)

2000

2001

2002

2003

2004

2005

2006

Figure 7

Office Supply and Occupancy Trend in Johor Bahru(2000 – 2006)

Source: KF Research

Sup

ply

('m

il sq

ft)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Occ

upan

cy (

%)

2000

2001

2002

2003

2004

2005

2006

58

60

62

64

66

68

70

Supply Occupancy

Page 12: Knight Frank h 206

Malaysia Contacts

Eric Y H OoiManaging [email protected]

Chong Teck SengExecutive DirectorAgency [email protected]

Zaharin Bin Ahmad ZamaniExecutive DirectorManagement [email protected]

Sarkunan SubramaniamExecutive DirectorAdvisory [email protected]

Tan Wei SeeExecutive DirectorAdvisory [email protected]

Leslie J H KhoResident DirectorJohor Bahru [email protected]

Tay TamResident DirectorPenang [email protected]

(60)3 228 99 688knightfrank.com

Research

Knight Frank Research provides strategic advice, consultancy services and forecasting to a wide

range of clients worldwide including developers, investors, financial and corporate institutions. All

recognise the need for the provision of expert independent advice customised to their specific

needs.

Knight Frank Research Reports are also available at knightfrank.com

© Knight Frank 2006This report is published for general information only. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no legal responsibility can be accepted by Knight Frank Research or Knight Frank for any loss or damage resultant from the contents of this documents. As a general report, this material does not necessarily represent the view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is allowed with proper reference to Knight Frank Research.

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