Real Estate Highlights - Property Week

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Research Real Estate Highlights Kuala Lumpur - Penang - Johor Bahru • 1st Half 2008 Contents Kuala Lumpur Condominium Market 2 Office Market 5 Retail Market 8 Hotel Market 10 Penang Property Market 12 Johor Bahru Property Market 14 Kuala Lumpur The high end condominium market stabilised in the first half of 2008 in terms of take up, capital values and rentals. Rentals and occupancies of prime offices continued to rise due to the current tight supply of good quality office buildings. Several retail centres located at fringes of KL City are undergoing refurbishment works to remain competitive. The performance of the hotel industry had been resilient attributed to high tourist arrivals and receipts, which led to the increase in average room rates and occupancies. Penang Most of the high end condominium projects which are nearing completion have been sold, with prices being revised upwards. The retail industry performed well with higher tourist arrivals in Penang. The asking rentals of newly completed offices with better IT facilities are ranging from RM2.50 to RM3.50 per sq ft per month. Johor The high end residential market is gaining momentum with the positive development of Iskandar Malaysia. Prime retail centres continued to enjoy growth in rentals and occupancies. Office sector remains healthy at an average occupancy of 70%. Residential Office Executive Summary Retail Hotel

Transcript of Real Estate Highlights - Property Week

Page 1: Real Estate Highlights - Property Week

Research

Real Estate HighlightsKuala Lumpur - Penang - Johor Bahru • 1st Half 2008

Contents

Kuala Lumpur

• Condominium Market 2

• Office Market 5

• Retail Market 8

• Hotel Market 10

Penang Property Market 12

Johor Bahru PropertyMarket 14

Kuala Lumpur• The high end condominium market stabilised in the first half of 2008 in terms of take

up, capital values and rentals.• Rentals and occupancies of prime offices continued to rise due to the current tight

supply of good quality office buildings.• Several retail centres located at fringes of KL City are undergoing refurbishment works

to remain competitive.• The performance of the hotel industry had been resilient attributed to high tourist

arrivals and receipts, which led to the increase in average room rates and occupancies.

Penang• Most of the high end condominium projects which are nearing completion have been

sold, with prices being revised upwards.• The retail industry performed well with higher tourist arrivals in Penang.• The asking rentals of newly completed offices with better IT facilities are ranging from

RM2.50 to RM3.50 per sq ft per month.

Johor• The high end residential market is gaining momentum with the positive development

of Iskandar Malaysia.• Prime retail centres continued to enjoy growth in rentals and occupancies.• Office sector remains healthy at an average occupancy of 70%.

Residential Office

Executive Summary

Retail

Hotel

Page 2: Real Estate Highlights - Property Week

Kuala Lumpur High End Condominium MarketMarket Indications

The high end condominium market generally stabilised during the first six months of the year with one

notable new project, The Regent Residences (across Twin Towers), recording prices in excess of RM2,500

per sq ft. In addition, the market also saw the entry of Sunway Vivaldi in Mont’ Kiara, setting a new

benchmark in the Mont’ Kiara locality (with average pricing of RM850 to RM900 per sq ft).

Supply & Demand

There were several new completions in the KL City during the first half of the year, adding some 680 new

units to the existing high end condominium supply. The newly completed projects include 2 Hampshire,

The Meritz, Cendana on Sultan Ismail, Menara Bintang Goldhill, Park Seven and Taragon Puteri YKS. In the

Ampang Hilir/U-Thant locality, two projects were completed, namely Mutiara Upper East and The

Residences Katana.

There was no new completion in both the Damansara Heights and Bangsar localities whilst several

completions were noted in Mont’ Kiara which include Kiaraville, Hijauan Kiara, Mont’ Kiara Banyan,

I-Zen@Kiara I and Kiaramas Ayuria. These completions added approximately 1,900 high end condominium

units and brought the total cumulative supply figure to 13,170 for the supply located at the fringes of KL City.

Demand for selected high end condominiums remained firm in the first half of 2008. Gaya Bangsar,

developed by UDA Holdings Berhad, was launched in early 2008 and was fully sold within a month from

launch whilst Panorama, a project located along Persiaran Hampshire in the city, achieved 85% sales rate

within 2 months of launch.

Table 1: High End Condominium Projects Launched in 1H2008 Total

Project Location Area Unit Developer

Regalia @ Jalan Jalan Sultan Ismail KL City 1,033 Mayland View Sdn BhdSultan Ismail

The Oval Jalan Binjai KL City 140 Oval Residences Sdn Bhd

Panorama Persiaran Hampshire KL City 223 Promatik Emas Sdn Bhd

The Regent Jalan Ampang KL City 115 KL Landmarks Sdn BhdResidences*

Swiss Garden Jalan Galloway, KL City 436 Superville Sdn BhdResidences Off Jalan Pudu

51 Gurney* Jalan Perumahan KL City 68 Zahari Holdings Sdn Bhd Gurney/Jalan Gurney

9 Madge Jalan Madge U-Thant 23 Rodem Sdn Bhd

Damai 206 Jalan Damai, Off U-Thant 18 Metroworld Residences Jalan Ampang Sdn Bhd

Suasana Bangsar Jalan Kaloi Bangsar 191 United Malayan Land Bhd

Gaya Bangsar Jalan Maarof Bangsar 285 UDA Holdings Bhd

Kiara 9 Jalan Kiara 3 Mont’ Kiara 192 Kina-Bijak Sdn Bhd

Sunway Vivaldi Jalan 19/70A Mont’ Kiara 228 Sunway City BhdMont’ Kiara

* to be officially launched in second half of the year

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Artist Impression of Panorama

Figure 1

Projection of Cumulative Supply for High End Condominium(2008 - 2010)

Source: KF Research

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The new launches were well received by the market and gained strong foreign interest attributed to their

competitive pricing in the Asian region and their unique concepts. For instance, 51 Gurney, located at Jalan

Perumahan Gurney, has attracted considerable foreign interest with its unique selling point of car lift system

that allows residents to park their cars within their premises. This had led to its good sales performance of

more than 35% within the first two weeks of launch. The Regent Residences, with benchmark pricing at an

average of RM2,600 per sq ft, has been receiving good response from foreign interests, since its pre-sales in

April 2008.

More completions are expected for the second half of the year with a total estimated 1,520 units in KL City

and 182 units in its fringe areas. Some of the notable completions by end of this year will include The Binjai,

K Residence and The Avare in KL City whilst Kiara 1888 in Mont’ Kiara is scheduled for completion in the

second half of 2008.

The possible new launches in the second half of 2008 are listed in Table 2 below. It is estimated that some

3,000 units may be launched in the city area whilst some 80 units will be launched at the Ampang

Hilir/U-Thant locality.

Table 2: Possible High End Condominium Projects to be Launched in 2H2008 Total

Project Location Area Unit Developer

Millennium Residence Jalan Bukit Bintang KL City 132 CDL Hotels (Malaysia) Sdn Bhd

The Binjai Jalan Binjai KL City 171 Layar Intan Sdn Bhd

Platinum Residences Jalan Binjai KL City 123 TTDI Development Sdn Bhd

Acadia Residensi Jalan Tun Razak KL City 429 IMC Parkville (KL) Sdn Bhd

Setia Sky Residences Jalan Tun Razak/ KL City 844 SP Setia Bhd Jalan Raja Muda Abdul Aziz Shah

St. Mary Residency Jalan Tengah KL City 657 Mergexcel Property Development Sdn Bhd

Verticas Residency Jalan Ceylon KL City 423 Wing Tai Asia

Unnamed Persiaran Raja KL City 310 UM Land Chulan

Amarin Wickham Jalan Wickham Ampang Hilir 21 Amarin Wickham Sdn Bhd

Unnamed Jalan Penggawa Ampang Hilir 56 SsangYong Residences (M) Sdn Bhd

Artist Impression of 51 Gurney

Artist Impression of The Regent Residences

Figure 2

Average Sales Status for High End Condominium

Source: KF Research

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Prices & Rentals

The prices of existing high end condominiums in KL City and its fringe areas were stable in the first half of

2008. Popular residential addresses such as Mont’ Kiara saw asking prices increased to RM650 and RM700

per sq ft compared with the RM400 to RM600 per sq ft mark recorded one year ago. The higher prices in

Mont’ Kiara were seen in projects such as Kiaraville, Hijauan Kiara and Mont’ Kiara Banyan. In Bangsar,

asking prices have also increased to a high of RM950 per sq ft following the completions of Palmyra and

The Loft Bangsar. Based on our market observation, the asking prices of newly completed high end

condominiums are significantly higher than the older high end condominiums.

There was an en-bloc transaction during the first half of 2008 i.e. Sunway City Bhd sold Block B (80 units) of

its Sunway Palazzio units to Radiant Splendour Sdn Bhd, a Middle Eastern fund, for RM220 million, analysed

to RM750 per sq ft.

Rentals remained stable in the first half of the year, with slight increments in certain localities due to the

completions of better quality condominiums. In KL City, the asking rentals of the soon to be completed

projects i.e. K Residence and The Avare are expected to range from RM6.00 to RM8.00 per sq ft per month.

Table 3: Asking Prices and Rentals of Existing High End CondominiumsLocality Asking Gross Rent Asking Selling Price

(RM psf/month) (RM psf)

KL City 4.50 - 7.50 700 - 1,400

Ampang Hilir/U-Thant 3.50 - 5.50 500 - 1,000

Damansara Heights 3.90 - 4.80 500 - 700

Kenny Hills 3.50 - 4.50 500 - 800

Bangsar 3.00 - 5.00 450 - 900

Mont’ Kiara 2.80 - 4.50 400 - 700

OutlookMarket sentiments for high end condominium in the second half of the year are expected to be more

cautious and some of the projects scheduled for launch may be deferred. The completion of new

projects is expected to lead to a competitive rental market, both in the city and fringe areas. The

competitive high end condominium market is also driving developers to greater level of product

innovation and marketing strategies.

“Rentals remained stable in the first half of the year, with slight increments in certain localities due to the completions of better quality condominiums”

Figure 3

Average Selling Price forHigh End Condominium

Source: KF Research

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“The office market started on a strong note with prime office rentals in KL City charging ahead by approximately between 15% and 20% in the first half of 2008, attributed to tight supply of prime office space…”

Kuala Lumpur Office MarketMarket Indications

The office market started on a strong note with prime office rentals in KL City charging ahead by

approximately between 15% and 20% in the first half of 2008, attributed to tight supply of prime office

space, particularly within the KLCC development and its immediate fringes. The tight supply also drove

occupancies up in prime offices in KL City, KL Sentral and Mid Valley. Amidst the rising inflationary pressures

and global economic uncertainties, the office market was resilient in the first half of the year. However, its

strong performance may be dampened in the second half of the year due to continued uncertainties on the

global and local economic fronts.

Supply & Demand

In the first half of 2008, KL City recorded cumulative office space of 40.9 million sq ft with the completions

of Menara Commerce and Menara Perak whilst fringes of KL City has added another prime building in Mid

Valley City i.e. South Tower at The Gardens and brought the total supply in fringes of KL City to 11.4 million

sq ft. The new completions recorded commendable take-up which brought the current average occupancy

of new buildings at 60%.

New buildings coming on stream in KL City and its fringes are Sunway Tower KL 2 (273,200 sq ft), Pavilion

KL-DBKL office (185,000 sq ft), North Tower at The Gardens in Mid Valley (430,000 sq ft) and UEM Tower

in KL Sentral (500,000 sq ft).

Menara Denmark along Jalan Ampang is currently undergoing refurbishment works and will re-enter the

market as Sunway Tower KL 2 whilst the adjoining tower, Sunway Tower KL 1 is expected to be completed

in 2011. Both the towers will offer a total net lettable area of 623,220 sq ft upon full completion in 2011.

Office buildings currently being refurbished are Menara Genesis at Jalan Sultan Ismail, MIDF Tower at Jalan

Raja Chulan and Wisma Hamzah-Kwong Hing at Leboh Ampang. Central Plaza, located along Jalan Sultan

Ismail, completed its refurbishment works in February 2008.

Some office buildings which have added facilities to attract tenants are Wisma UOA Centre with a RHB

Banking Hall (moved in on the ground floor in early 2008) and Menara MPL with a wellness spa which

occupied a large space of 21,000 sq ft in early 2008.

During the last six months, the average occupancy of office buildings in Kuala Lumpur was recorded at

86% with prime offices recording average occupancy of 96% attributed to business expansions. It is

becoming increasingly difficult to obtain readily available large prime office space in the KLCC development

and its immediate fringes. The last six months also saw higher occupancies and rentals in the KL Sentral

locality with more offices relocating there due to its cyber centre status and convenience of the

transportation hub. Since the recent rise in fuel costs, there is a growing trend for companies to locate their

offices close to LRT stations, in their effort to ease the burden of rising transportation costs on employees.

Figure 4

Occupancy and Rental Trends(2000 - 1H2008)

Source: KF Research

KL City: Menara Perak, Jalan Perak

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“The first half of the year saw several transactions on ‘forward purchase’ basis which recorded capital values surpassing RM1,000 per sq ft”

Trends are also showing that more office developments are adopting green features such as energy saving,

reduce wastage and water usage and use of non-toxic materials. Office projects under construction which

are designed with green building features are G Tower along Jalan Tun Razak, Sime World HQ in KLGCC

and PJ Trade Centre in Damansara Perdana.

Rentals & Capital Values

The first half of the year saw several transactions on ‘forward purchase’ basis which recorded capital values

surpassing RM1,000 per sq ft.

During the first half of 2008, Kuwait Finance House (KFH) entered into an agreement with YNH Property

Bhd for the purchase of half of Menara YNH with a total consideration of RM920 million (approximately

RM1,230 per sq ft).

The same party, KFH, was involved in a another forward purchase agreement of a proposed prime office

development within the immediate fringe of the KLCC development known as Glomac Tower. The building

is located at the intersection of Jalan Pinang and Jalan P.Ramlee and analysed at RM1,120 per sq ft over the

net lettable area.

Table 4: Office Sales in 1H2008Building Name Location Approx. Lettable Consideration (RM)/

Area (sq ft) (RM psf)

Glomac Tower Jalan Pinang/Jalan 515,003 RM576,853,150 (1,120) P.Ramlee

Tower 2, CapSquare Jalan Munshi Abdullah 600,000 439,300,000 (732)

Menara Felda Jalan Binjai 689,000 640,700,000 (930)

Bangsar South (3 Towers) Pantai Dalam 177,500 (estimate) RM131,350,000

PJ City Petaling Jaya 172,041 75,698,000 (440)

KUB.com Building Jalan Yap Kwan Seng 198,000 86,500,000 (437)

Menara HeiTech Village Subang Jaya 166,696 65,000,000 (390)

Other transaction include the upcoming prime office known as Menara Felda, part of an ongoing mixed

development along Jalan Binjai known as Platinum Park and was transacted early of the year at RM930 per

sq ft.

Bangunan Angkasaraya, one of the oldest office developments strategically located at the Jalan

Ampang/Jalan P.Ramlee/Jalan Yap Kwan Seng intersection, was sold to Sunrise Berhad at RM179 million.

The 1.6-acre site will be redeveloped into an upscale commercial development.

KL City: Menara Commerce, Jalan Raja Laut

Figure 5

Capital Values and Gross Yield Trend(2000 – 1H2008)

Source: KF Research

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The achieved average rental for KL City is analysed at RM5.95 per sq ft per month whilst fringes of KL City is

now achieving average rental of RM4.45 per sq ft per month with recorded increases of 7% and 9.6%

respectively compared to end of 2007.

Table 5: Selected Grade A Office Asking Rentals Asking Gross Rental (RM psf/month)

Menara Maxis 9.00

Menara Prudential 7.00

Menara IMC 7.00

Menara Dion 9.00

Rohas Perkasa 6.50

Menara Citibank 8.50

Menara Standard Chartered 7.00

Menara Etiqa Twins 6.50

Menara HLA 7.00

Menara Millennium 5.50

Tight supply of prime offices in KL City have prompted some owners of prime buildings having only small

pockets of space to increase their asking rentals between 15% and 20%, bringing the average rental to

RM7.50 per sq ft per month compared to RM6.50 per sq ft per month at the end of 2007. This current

scenario is especially true for prime office buildings located within the vicinity of KLCC development which

includes Jalan Ampang, Jalan Pinang and Jalan Sultan Ismail. Menara Citibank, a prime office building

located next to Nikko Hotel and within short walking distance to the Ampang Park LRT station, is now

asking for RM8.50 per sq ft per month.

Fringes of KL City also saw rental increment in Mid Valley City (about 20% increase compared to end of

2007) with the newly completed South Tower at The Gardens pegging asking rentals of RM5.50 per sq ft

per month; steadily catching up and recording similar rental level as Damansara Heights. The first half of

2008 also saw a new rental benchmark being recorded in KL Sentral at RM8.00 per sq ft per month.

OutlookKuala Lumpur office market is expected to stabilise amidst businesses adjusting to the challenging

economic environment. New office completions located strategically close to LRT stations are expected

to draw strong interest from potential tenants and investors. Office locations within KLCC and its

immediate fringes as well as KL Sentral are anticipated to remain as firm favourites amongst office

tenants and investors.

Fringes of KL City: South Tower at The Gardens, Mid Valley City

“Tight supply of prime offices in KL City have prompted some owners of prime buildings having only small pockets of space to increase their asking rentals between 15% and 20%, bringing the average rental to RM7.50 per sq ft per month…….”

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“The healthy tourist arrivals and receipts are expected to cushion the impact of lower consumer spending and sustain the growth of the retail industry for the year”

Klang Valley Retail MarketMarket Indications

The retail sector remained strong in the first half of 2008 particularly in the first quarter, reflected by positive

consumer sentiments. The Consumer Sentiments Index (CSI) monitored by the Malaysian Institute of

Economy Research (MIER) showed that the index has climbed from 110.7 points (4Q07) to 115.5 points

(1Q 2008). The positive sentiment was also reflected in the Business Conditions Index (BCI) where the

index climbed 14 points from 105.5 (4Q07) to 119.9 (1Q08).

However, soaring inflation, especially for items such as food, petrol and energy, has dampened the retail

sentiment in the second quarter of 2008. Inflation rose to 26-year high of 7.7% in June and it is set to rise

further in the second half of the year. This has resulted in consumers tightening their spending on retail

goods and services due to higher cost of living. The healthy tourist arrivals and receipts are expected to

cushion the impact of lower local consumer spending and sustain the growth of the retail industry for the

year.

Supply & Demand

There was no new completion of shopping centres in the first half of 2008 and total existing supply stood

at 17.8 million sq ft in Kuala Lumpur and 12.8 million sq ft in Selangor. During the review period,

Southgate along Jalan Sungai Besi was launched, offering a total of 63 strata units.

In terms of proposed supply, Vision City (an abandoned mixed development at Jalan Sultan Ismail) is

expected to be revived. The retail centre was sold to Quill Retail Malls Sdn Bhd in July 2007 and

construction works are expected to resume in 2009. Plaza Rakyat, another abandoned project, may only be

revived post 2010. Under the Draft KL City Plan 2020, the former Pudu Jail will be redeveloped into Bukit

Bintang City Centre comprising a mixed development of office tower, hotel, serviced apartment tower,

condominiums and a shopping centre, scheduled to be fully completed in the next 7 to 8 years.

Table 6: Shopping Centres Launched in 1H2008Project Location Launching Date Approx. Lettable

Area (sq ft)

Southgate - Vox Building (63 Jalan Sungai Besi 13 June 2008 Approx. 145,800Retail Lot) (approx. 22,000 for Vox Building)

Retail centres which are undergoing various stages of refurbishment and upgrading works include Bangsar

Shopping Centre (BSC), Central Market, Ue3 and The Mines Shopping Fair. At the fringes of KL City, Bandar

Raya Developments Bhd (BRDB) will be upgrading BSC and also building a 12-storey office tower with a

4-storey retail annex known as BSC Phase 3. Meanwhile, Central Market will be upgraded by Kha Seng

Corporation Sdn Bhd with plans of developing the riverside into historical walk and alfresco dining outlets

and the portion fronting Jalan Kasturi converted into a covered mall. Ue3 shopping centre located in Cheras

will also be carrying out a RM100-million refurbishment exercise to reposition the centre into a lifestyle mall

and it is scheduled for opening in the first half of 2009. In Seri Kembangan, the new owner of The Mines

Shopping Fair, CapitaLand Retail, is carrying out repositioning and refurbishment works (internal finishes

and car park areas) to stay ahead of competition.

Artist Impression of Southgate

Figure 6

Retail Sales Growth Trend(2000 - 2008)

Source: KF Research/MRA

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Tourist Arrivals and Receipts(2000 - 2008)

Source: KF Research/Tourism Malaysia

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Artist impression of Paradigm Mall

Table 7: Proposed Shopping CentresProject Location Completion Date Approx. Lettable

Area (sq ft)

Paradigm Mall Petaling Jaya 2010 700,000

Lot G KL Sentral 2011 750,000

Sunway Velocity Jalan Peel 2013 N/A

Bukit Bintang City Centre Bukit Bintang 2016 N/A

The Sphere Bangsar South Bangsar Not finalised Not finalised

Table 8: Shopping Centres Scheduled for Opening in 2H2008Project Location Opening Date Anchor Tenant

Harbour Place Klang 4Q 2008 Tune Group has ventured into Harbour Place

Prices & Rentals

The rentals for prime centres in KL City remained firm in the first half of 2008. There was a prominent

transaction during the first half of 2008 i.e. the acquisition of 61.9% of Sungei Wang Plaza for RM595

million by Singapore-listed CapitaLand Retail.

Table 9: Transactions of Shopping Centres in 1H2008Project Location Transaction Remarks

Price (RM)

Sungei Wang Plaza Bukit Bintang Area 595,000,000 CapitaLand acquired approximately 61.9%, equivalent to 510,418 sq ft of total retail strata area

OutlookThe recent fuel price increase has dampened both consumer sentiments and spending, resulting in lower

projected retail sales growth for 2008. The Malaysian Retailers Association has revised the estimated

growth rate from 8% to 7% with the expected retail sales of RM68.69 billion for the year 2008. In spite

of the challenging economic environment, the Malaysian retail industry is expected to be buffered by

sustained tourist spending.

Figure 8

Achieved Rents for Ground Floor of Prime Centres in KL City(2000 - 1H2008)

Source: KF Research/Napic

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Kuala Lumpur Hotel MarketMarket Indications

The local hotel industry was resilient amidst tough market conditions and has continued its bullish

performance, supported by high tourist arrivals and receipts in the first six months of 2008. The tourist

arrivals in May 2008 was recorded at 1.89 million; 2.7% higher than 1.84 million recorded for the

corresponding period in 2007. Statistics from the Ministry of Tourism Malaysia revealed that the largest

number of tourists were from ASEAN countries, followed by Japan, China, Australia, Middle East and India.

The full year tourist arrivals is expected to reach 22.5 million (21 million: 2007) with tourist receipts of

RM50 billion (RM45.7 billion: 2007).

The industry received further boost in February this year with the setting up of PEMUDAH (Special Task

Force to Facilitate Business) aimed at reducing red tape in the application of licenses and permits for the

setting up of new hotels. The setting up of this one-stop centre is anticipated to enhance the local hotel

market competitiveness in the region.

Several 5-star hotel players made some exciting announcements in the first half of 2008 which include the

approval for Grand Hyatt Hotel (450-room) at Jalan Pinang, Kuala Lumpur and the market entry of the

prestigious St. Regis Hotel, which will be located at KL Sentral (200-room).

Supply & Demand

The current supply of 4-star and 5-star hotel rooms in KL City stood at 6,760 and 9,120 respectively, with

the bulk of the supply being located within tourist belts in the city such as Jalan Sultan Ismail, Jalan

Ampang, Jalan Bukit Bintang and the KLCC locality.

The average occupancy rate for both 4-star and 5-star hotels in KL City was recorded at 70% (as at first half

of 2008); 2% higher compared with the same corresponding period in 2007.

During the first half of the year, the 5-star 438-room One World Hotel in Bandar Utama made its debut in

January 2008. Meanwhile, several hotels located in KL City which include the Impiana KLCC, Berjaya Times

Square Hotel and Renaissance Kuala Lumpur, were seen embarking on refurbishment works. Impiana KLCC

is currently undergoing expansion and will be adding another 180 rooms to its current 335 rooms. Berjaya

Times Square Hotel & Convention Centre’s three-phase refurbishment and redevelopment exercise (started

in April 2008 and costing RM20 million) is expected to be completed in September this year. Renaissance

Kuala Lumpur, meanwhile, will undergo a RM53 million facelift in 2008 and 2009.

Hotels which are scheduled to be completed by the end of this year include Hotel Grand Mercure Putrajaya

Lakeside (August 2008), Royal Chulan Tower Hotel & Residence and The Gardens Hotel & Residences in

Mid Valley City.

Planned supply identified during the first six months of the year includes Grand Hyatt Hotel located along

Jalan Pinang. This 40-storey hotel to be developed by the Brunei Investment Agency will house 450 rooms

and is estimated to cost about RM360 million. As for proposed supply, the announcement of the luxury

brand, St Regis, has enhanced Malaysia’s regional standing in the 5-star hotel category. The proposed St

Regis development will consist of a 200-room hotel component and some 200 freehold luxury residences.

The construction of the project is scheduled to start in 2010 and it is slated to open in 2014.

10 Knight FrankReal Estate Highlights - Kuala Lumpur | Penang | Johor Bahru • 1st Half 2008

knightfrank.com

“The local hotel industry was resilient amidst tough market conditions and has continued its bullish performance….”

One World Hotel

Figure 9

Supply and Occupancy Rate of 4-Star & 5-Star Hotels in KL City(2003 - 1H2008)

Source: KF Research/MIHR

12,000

12,500

13,000

13,500

14,000

14,500

15,000

15,500

16,000

16,500

58

60

62

64

66

68

70

72

74

Num

ber

of

Ro

om

s

Occ

upan

cy (

%)

Supply Occupancy Rate

2003

2004

2005

2006

2007

1H20

08

Page 11: Real Estate Highlights - Property Week

Knight Frank 11Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru • 1st Half 2008

“The 4-star and 5-star hotels demonstrated strong performance as evident from the high ARR achieved during the first half of 2008”

Another identified proposed project is the redevelopment of Bangunan MAS by Permodalan Nasional Bhd

(PNB). PNB acquired Bangunan MAS from Malaysia Airlines (MAS) two years ago and intends to redevelop

the building into a hotel and apartments. PNB purchased the 35-storey building located along Jalan Sultan

Ismail, Kuala Lumpur, for RM130 million.

Average Room Rates & Capital Values

The 4-star and 5-star hotels demonstrated strong performance as evident from the high Average Room Rate

(ARR) achieved during the first half of 2008. The ARR for 5-star hotels was recorded at RM370 (first half of

2008), higher than RM320 recorded for the corresponding period in 2007. Notable hotels which recorded

ARR above RM300 in the first half of 2008 were Hilton Kuala Lumpur (RM460), JW Marriott (RM390),

Mandarin Oriental (RM650) and The Westin (RM450). The ARR for 4-star hotels was recorded at RM200

between January and June this year, 10% higher than RM180 recorded between January and June in 2007.

Several hotels that achieved ARR of more than RM200 during the first half of 2008 were Hotel Maya

(RM320), Traders Hotel (RM320), Concorde Hotel (RM250) and Boulevard Hotel at Mid Valley (RM220).

OutlookThe positive hotel performance in 2007 had continued into the first half of 2008 as reflected in the

strong occupancy and higher average room rate. The setting-up of the one stop centre (PEMUDAH) is

timely to attract investors and new hotel operators entering into the local hotel market. However, the

hotel industry is anticipated to undergo challenging market condition in the second half of 2008 with

rising operational cost and tougher economic environment.

Figure 10

Average Room Rate of 4-Star & 5-Star Hotels in KL City(2003 - 1H2008)

Source: KF Research/MIHR

50

100

150

200

250

300

350

400

Ave

rag

e R

oo

m R

ate

(RM

)

2003 2004 2005 2006 2007 1H2008

4-Star 5-Star

Page 12: Real Estate Highlights - Property Week

12 Knight FrankReal Estate Highlights - Kuala Lumpur | Penang | Johor Bahru • 1st Half 2008

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Penang Property MarketMarket Indications

• The State Government’s decision to allow owners of leasehold properties to apply for a change of

tenure to freehold will have a significant positive impact on property values. Subject to the payment of

a premium, leasehold residential landed properties can be converted to freehold whilst industrial and

commercial properties can now have their leasehold titles converted to a maximum of 99 years.

• Japan-based printed circuit board maker Ibiden Co Ltd recently announced an investment of RM1.2

billion to set up a facility on an 18-hectare site in Penang Science Park.

• Several other MNCs such as Motorola, P.I.E. as well as home grown industries are reinvesting to expand

their existing plants.

• Mah Sing Group recently soft-launched “Southbay”, a mixed development project on a 33.81-hectare

site in Batu Maung. With an expected GDV of RM1.3 billion, the site will have link houses, 3-storey and

4-storey bungalows, retail shops, 3-star to 5-star hotels, serviced apartments and a retail mall.

• The residential property sector in Penang has been given a boost as the State has attracted a major

portion of the foreigners buying homes under the “Malaysia My Second Home” (MM2H) programme.

• The second Penang Bridge linking Batu Maung on the island and Batu Kawan on the mainland will now

cost RM4.5 billion and will be completed in 2011 as scheduled.

High End Condominium• There were no new launches of high end condominium projects in the first half of 2008.

• Most of the units in projects nearing completion have been sold, many at prices that have been revised

upwards.

• Sale activity of completed projects and those nearing completion within the prime areas of Pulau Tikus

and Tanjung Bungah indicated an increase with prices ranging from RM380 to RM600 per sq ft.

• For fully furnished units with sizes ranging from 2,500 to 5,800 sq ft, monthly rentals range from

RM5,000 to RM10,000 per unit per month.

Office• Existing office supply increased by 95,000 sq ft with the completion of Menara IJM located next to

Tesco Hypermarket, Penang within the newer area known as MetroEast.

• Additional supply will come from the following three projects located within the south-west district of

the island:-

Table 10: Future Supply of Office SpaceProject Location Approx. Expected Completion

Lettable Area

(sq ft)

Suntech City Bayan Baru 180,000 3Q 2008

The CEO Bukit Gambier 250,000 4Q 2009

BayCapital Bayan Baru 100,000 2010

Development along Gurney Drive

Figure 11

Office Supply and Occupancy in Georgetown(2000 - 1H2008)

Source: KF Research/Napic

0

1

2

3

4

5

6

7

8

62

64

66

68

70

72

74

76

78

80

Sup

ply

(m

il sq

ft)

Occ

upan

cy (

%)

2000

2001

2002

2003

2004

2005

2006

2007

1H20

08

Supply Occupancy

Page 13: Real Estate Highlights - Property Week

Knight Frank 13Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru • 1st Half 2008

• The two most popular prime buildings saw a slight increase in occupancy rates which now stands at

80% to 95%.

• Gross rentals of prime office buildings have generally remained unchanged at RM2.20 to RM2.70 per sq

ft per month whilst those in secondary buildings range from RM1.50 to RM2.00 per sq ft per month.

• Asking rentals of newly completed office buildings with better IT facilities are higher, ranging from

RM2.50 to RM3.50 per sq ft per month. However achieved rentals are likely to be slightly lower.

Retail• The total supply of retail space as at first half of 2008 is estimated at 4.8 million sq ft.

• With the anticipation of more tourist arrivals into Penang, the retail industry is expected to remain

healthy. Tourist arrivals into Penang in 2007 numbered 3.44 million, an increase of approximately 11%

over 2006 and these figures are projected to further increase to 4.7 million in 2010.

• The table below shows the future supply of retail space from projects under construction and planned:

Table 11: Future Supply of Retail SpaceProject Location Approx. Expected

Lettable Completion

Area (sq ft)

* Aeon Seberang Perai City Bukit Mertajam 660,000 3Q 2008

* Penang Times Square Phase I Georgetown 337,000 4Q 2008

* Gurney Plaza extension Georgetown 135,000 4Q 2008

* Penang Times Square Phase 2 Georgetown 229,000 2009/2010

* Komtar Phase 3 Georgetown 600,000 2009/2010

** Gurney Paragon Georgetown 1,000,000 Scheduled 2010

** Queensbay Mall extension Bayan Baru 400,000 Scheduled 2010

** Penang Times Square Phase 3 Georgetown 290,000 Scheduled 2012

* under construction ** planned

• Occupancy rates of the prime shopping malls range from 90% to 95% whilst occupancy rates of

secondary centres range from 60% to 90%.

• Gross rentals of ground floor retail space in prime centres range from RM13.00 to RM30.00 per sq ft

per month depending on the location and size of the units.

• The Tesco Hypermarket at MetroEast on Penang Island with a net lettable area of 275,000 sq ft and

1,050 car park bays was sold for RM132 million in May 2008. The sale is analysed to RM480 per sq ft.

OutlookThe overall outlook for the property market, which has been active for the past half year, appears to be

moving towards consolidation. Sales are expected to be slower as potential purchasers defer their buying

decisions in view of the various uncertainties as well as concerns of a global economic slowdown.

Tesco Hypermarket, Penang

The newly completed Menara IJM

Page 14: Real Estate Highlights - Property Week

14 Knight FrankReal Estate Highlights - Kuala Lumpur | Penang | Johor Bahru • 1st Half 2008

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Johor Bahru City Square

Commercial district of Taman Sutera Utama

Johor Bahru Property MarketMarket Indications• Johor’s GDP is projected to grow at 6.8% in 2008 with RM11 billion of Foreign Direct Investment (FDI)

against 6.1% at RM8 billion in 2007.

• The Government’s plan and commitment to improve and upgrade the infrastructure within Iskandar

Malaysia (IM), will be a boost to the general economy as well as the property market. Some of the

major on-going works include:

• The new Customs, Immigration and Quarantine (CIQ) Complex (RM1.26 billion) to be

operational by December this year.

• The RM1 billion Coastal Highway linking Johor Bahru city to Nusajaya in the west and Pasir

Gudang/Tanjung Langsat in the east, expected to be completed by 2010.

• The RM190 million second Permas Jaya bridge to be completed by 2010.

• The Eastern Dispersal Link (EDL) which connects the new CIQ to the North-South Expressway at

Pandan. EDL has a project value of RM1 billion, scheduled for completion by 2010.

• The RM1.46 billion Senai-Desaru Highway linking the Sultan Ismail Airport to Desaru, targeted

for completion by end of 2008.

• Investments secured for IM have amounted to about RM33 billion as of June 2008. This represents

about 70% of the targeted investment of RM47 billion, for the period between 2006 and 2010.

• The major transactions reported for IM include the following:

• Kota Selat Tebrau Sdn Bhd and Oakwood Asia Pasific Pte Ltd will jointly develop a 235-room

serviced apartment known as the Oakwood Residence Johor in Danga Bay, at a total project cost

of RM400 million.

• Al Nibras2 Limited (a subsidiary of Kuwait Finance House), one of the three Middle Eastern

conglomerates to develop NODE 1 in Nusajaya, has commenced the development of its portion

measuring about 620 acres. This site is designated to be developed as the Cultural Cluster

which includes Logistics Village, Creative Parks and Heritage District with properties like

industrial, commercial and mixed residential.

• Tune Hotels Sdn Bhd to invest RM20 million to develop a 3-star hotel in Danga Bay.

• Paramount Corporation Berhad invested RM13 million to buy a 4-hectare site in East Ledang,

Nusajaya, to build a Sri KDU Smart School at an estimated cost of RM40 million.

• A JV between Nusajaya Medical Park and Columbia Asia to develop a 70-bed hospital which is

expected to be operational in 2010.

• Damac Properties LLC purchased 3 parcels of commercial land with a total land area of about

17.4 hectares within Puteri Harbour, Bandar Nusajaya at a consideration of about RM397

million. These lands will be developed upon with commercial and residential properties as well

as a private marina, with an estimated GDV of about RM3.8 billion.

Residential• Oversupply situation in the mass housing market has somewhat eased in 2007, to 6,940 units

completed yet unsold as at end of 2007, compared to 8,220 units in 2006.

• New major launches include:

• Setia Eco Garden by SP Setia Berhad at Gelang Patah. This 1,363.52-acre mixed housing

development offers a variety of residential products branded with SP Setia’s eco-theme, and

planned with direct connection unto the Second Link Highway. Single storey houses are priced

from RM230,000 per unit.

• Taman Kempas Utama by IOI Group at Kempas, a 250-acre mixed residential development

strategically located at the Kempas Interchange of the North-South Expressway. Out of the total

land area, about 50 acres will be set aside for industrial development. It offers residential

products within a gated and guarded community, with double storey terraced houses priced

from RM260,000 per unit.

Page 15: Real Estate Highlights - Property Week

Knight Frank 15Real Estate Highlights Kuala Lumpur | Penang | Johor Bahru • 1st Half 2008

• Bayu Puteri Marina by Bayu Bay Development Sdn Bhd comprising 100 waterfront bungalow

lots, 34 units of 2 ½ storey semi-detached houses and 24 units of superlink houses located at

Bayu Puteri area, with the asking price for the superlink houses from RM700,000 per unit.

• East Ledang by UEM Land Berhad at Nusajaya. A relatively high-end residential development

that promotes leisure lifestyle, with 87 units of double storey terraced houses and 52 units of

semi-detached houses launched in February 2008 from RM460,000 and RM880,000 per unit

respectively, reported to be well-received.

• Mon Calista by PJ Development Sdn Bhd at Skudai which features gated and guarded

semi-detached and detached houses, with semi-detached houses priced from RM600,000 per

unit.

• With the committed investments secured for IM to-date and the positive perceptions on the economic

spin-offs, interest for high-end residential properties by both foreigners and Malaysians have gained

momentum. This new residential supply focusing on the leisure/resort living theme, some with

waterfront/marina and strata-titled horizontally and is anticipated to be well-received by investors.

Offices• The total net lettable area of purpose-built office space in Johor Bahru is about 7 million sq ft. There is

no new supply for the market during the first six months of 2008. The average occupancy rate is in the

region of 70%, or about 4.9 million sq ft occupied.

• Prime office space is let at a gross rental of between RM2.30 and RM2.80 per sq ft per month whilst

offices of average quality command a gross rental range of RM1.50 to RM2.00 per sq ft per month.

Retail• The total net lettable area of retail space (shopping complex, hypermarket and shopping arcade) in

Johor Bahru is estimated at 8.6 million sq ft. The average occupancy rate is around 55% although prime

centres have recorded occupancy rates in excess of 80%. Prime gross rents range from RM22.00 to

RM30.00 per sq ft per month, for typical leased areas of between 200 sq ft and 300 sq ft.

• New openings:

• Tesco Extra at Plentong (ex-Makro) in July 2008.

• Danga City Mall (previously known as Plaza Best World) and anchored by Metrojaya

Departmental Store, in August 2008.

• Sutera Mall, with gross floor area of about 600,000 sq ft at Taman Sutera Utama, anchored by

Carrefour, in August 2008.

• Proposed developments under construction:

• Tesco Desa Tebrau, KSL City at Taman Century, Jusco and Tesco at Taman Bukit Indah, which

will collectively add approximately 2 million sq ft of retail space to the market.

• Proposed developments:

• Hilltop at Nusajaya, planned for 1,000,000 sq ft of tenanted space and 5,000 car parks.

• Ikea Store at Desa Tebrau.

OutlookThe short term outlook will be challenging due to uncertainties posed by inflationary pressures.

However, the property market is expected to be resilient and sustainable, driven mainly by positive

developments of IM, a long-term economic project of national interest.

Figure 13

Retail Supply and Occupancy Trend in Johor Bahru(2000 - 1H2008)

Source: KF Research

2000

2001

2002

2003

2004

2005

2006

2007

1H20

08

Supply Occupancy

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

Sup

ply

(sq

ft)

Occ

upan

cy (

%)

50

52

54

56

58

60

62

64

66

Figure 12

Office Supply and Occupancy Trend in Johor Bahru(2000 - 1H2008)

Source: KF Research

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

58

60

62

64

66

68

70

Sup

ply

(sq

ft)

Occ

upan

cy (

%)

2000

2001

2002

2003

2004

2005

2006

2007

1H20

08

Supply Occupancy

Page 16: Real Estate Highlights - Property Week

Malaysia Contacts

Eric Y H OoiManaging [email protected]

Chong Teck SengExecutive [email protected]

Zaharin Bin Ahmad ZamaniExecutive DirectorProperty [email protected]

Sarkunan SubramaniamExecutive DirectorAgency/Investment/Global [email protected]

Judy Ong Mei-ChenExecutive DirectorValuation and Research & [email protected]

Matthias LouiExecutive DirectorProperty/Facilities [email protected]

Tan Lay KuenGeneral ManagerProject [email protected]

Leslie J H KhoResident DirectorJohor [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

recognize 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 2008This 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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