This article first appeared in City & Country, The Edge Malaysia Weekly on February 19, 2024 - February 25, 2024

The Malaysian property market witnessed a moderate growth amid a mixed performance in different segments and regions in 2023 following a strong rebound in 2022. For this year, Rahim & Co International Property Consultants Sdn Bhd (Rahim & Co) believes the market will grow steadily, with healthy demand for high-rise residential in transit-oriented developments, multi-compliant office buildings and niche industrial developments.

“While the official numbers for 4Q2023 have not been released, the first nine months of 2023 recorded among the highest numbers in transactions countrywide for the same period since 2011/12’s peak, indicating sustained market momentum from 2022. This is coherent with the post-pandemic recovery pace, which has surpassed pre-2020 performance,” Rahim & Co executive chairman Tan Sri Abdul Rahim Abdul Rahman said at a press conference on Rahim & Co Research Sdn Bhd’s Property Market Review 2023/2024 on Jan 30.

Although the market is showing signs of recovery, Abdul Rahim said sentiment remained on the side of caution. “Concerns about global geopolitical stability and economic challenges continue to linger. They include issues such as inflation-led high costs of living, homebuyers’ affordability as well as global chain disruptions from ongoing global conflicts. Despite these concerns, the economy still grew moderately, anchored by domestic demand, while unemployment numbers improved, bracing the property market momentum for the year,” he added.

According to the Property Market Review 2023/2024 report, the Malaysian economy was anchored by domestic demand as well as increased tourism activities last year. The first three quarters of 2023 saw consistent positive gross domestic product (GDP) growth, albeit lower than 2022’s high comeback.

When presenting the report, Rahim & Co director of research Sulaiman Saheh said: “In terms of GDP growth in 2023, Malaysia is still dynamically vibrant. The growth rate has actually normalised, however, growing only 3.3% in the third quarter of 2023, ranging out to the first nine months at 3.9%. But it is still growing.”

Sulaiman said household spending in the country is supported by continued steady improvement in unemployment rates and wage increments, although concern among consumers is still evident. As at last November, the country’s unemployment rate stood at 3.3%, compared with 3.9% at end-2022.

In the first nine months of 2023, the market recorded 293,095 property transactions worth RM142.5 billion, maintaining its position with just a 0.01% drop in volume from 9M2022 with 293,115 property transactions worth RM131 billion. The total value of transactions, on the contrary, showed an annual growth of 8.8%.

The transaction volume of Malaysia’s residential industry rose 1.3% year on year in 3Q2023, while the transaction value rose 3.5% y-o-y in 3Q2023. In the first three quarters of 2023, the price increase for residential properties was kept at a steady and moderating pace, Sulaiman said.

The overhang in dwelling units (comprising residential, serviced apartments and SoHo units) is still an issue, but Sulaiman explained that the numbers have decreased over the years. “The overhang numbers had reduced to 49,364 units worth RM36.9 billion as at 3Q2023. In 2Q2023, the overhang numbers stood at 51,126 units, and it was 55,482 units in 2Q2022.

“With a more stable price growth in the residential segment amid continuous focus on affordability, developers took on a more cautious approach to new launches by way of smaller-scale phases and prioritising ongoing projects over newer ones. This could have contributed to the improvement of the overhang numbers,” he said.

The report states that this marks the first period in which overhang dwelling stock has fallen below 50,000 units since 2019. Overhang dwelling stock peaked in 4Q2021 at 63,432 units worth RM44.5 billion.

On the outlook for the segment, Sulaiman said buyers were gradually gaining confidence in their property purchases but remaining cautious.

“Opportunities are also seen for landed homes, as they remain the preferred choice, as evidenced in the successful sales of projects offering units at affordable prices. For high-rise developments, the value-added presence of a transit station in transit-oriented developments will continue to attract both homebuyers and investors,” he says.

“Market dynamics now depend on factors such as the quality of the product, location and target market. Affordability is still a big concern and primarily addressed through TODs. By integrating TOD principles, developers can build units that are not only affordable but also conveniently located near workplaces, facilities and amenities.”

The commercial sector expanded the most, with transaction volume rising 22.3% y-o-y in 3Q2023 and transaction value rising 24.8% y-o-y in 3Q2023.

Sulaiman said there was now more demand for multi-compliant Grade A office buildings. “The incoming supply of new office buildings continues to make the office segment a more competitive landscape, as new office towers present corporate tenants with even more options, enabling them to be more discerning in their choices. Many of these new office towers have focused on the quality of spaces, provided that are green certified and with the advanced communication technology backbone.

“As hybrid working is here to stay, the demand for collaborative working spaces and flexible office spaces holds a significant portion of the overall demand for office space. In addition, corporations are recognising the benefits of environmental, social and governance (ESG) factors, amenity-rich locations and convenient connections to existing and new transportation lines. These are the most sought-after criteria they look for in an office building.”

While there is an increase in demand for high-quality offices, said Rahim & Co CEO of estate agency Siva Shanker, the older supply of offices might see an increase in vacancy rates.

“To prevent these buildings from becoming dilapidated, some of the older ones may, unfortunately, need to be torn down while others can be repurposed,” said Siva.

“We saw this happening during the pandemic, where a lot of old buildings were repurposed into budget hotels. That doesn’t seem to be working well now, compared to the period just after the pandemic [as there is too much supply now].

“So, we might see these buildings being repurposed into colleges and universities. They may also be converted into data centres but not like the ones in Cyberjaya. This will be more of a vertical data centre. We are also seeing the trend of healthcare facilities moving into these buildings, where they set up senior living facilities, retirement villages and other health service centres.”

Sulaiman added that many older buildings were now going through asset enhancement, to be either refurbished or redeveloped to cater for the current market demand. Abdul Rahim said the government should review the consent threshold for strata properties, where agreement from 100% strata title owners is currently required for any redevelopment to take place.

According to the report, the Klang Valley expects 11 million sq ft of new office space to enter the market, which would add pressure to occupancy rates. There is now 42 million sq ft of vacant office space available, which includes older office buildings that have fallen out of favour in comparison to the newer skyscrapers, which are equipped with more appealing amenities.

Upcoming office towers in Kuala Lumpur include Felcra Tower, on Jalan Sultan Yahya Petra, with a gross floor area (GFA) of 1.12 million sq ft; Merdeka 118 tower, on Jalan Hang Jebat, with a GFA of 1.65 million sq ft; CITITOWER, on Persiaran KLCC, with a GFA of 1.72 million sq ft; PHB Bangsar 61, on Jalan Riong, Bangsar, with a GFA of 548,000 sq ft; Oxley Tower, on Jalan Ampang, with a GFA of 346,000 sq ft; and Corporate Tower Velocity in Maluri, with a GFA of 200,000 sq ft.

Transaction volume for the industrial sector fell 1.8% y-o-y in 3Q2023, and transaction value rose 10.4% y-o-y in 3Q2023. As at 9M2023, the country’s industrial sector had 121,171 units, of which 769 units were overhang properties worth RM870 million.

Sulaiman said the sector has attracted a lot of attention in recent years, thanks to the growth of e-commerce and the logistics sector. He added that market interest remains, especially in integrated and managed industrial parks as well as logistics hubs.

Given that the industrial sector has received a lot of interest in the past three years, he warned that there could be an oversupply. “In mitigating an oversupply, niche industrial developments for specific industrial needs and built-to-suit properties are now in trend — for instance, managed industrial parks with centralised labour quarters or data centre technology parks as opposed to generic industrial offerings.”

The report says that, on Sept 1, 2023, the New Industrial Master Plan (NIMP 2030) was unveiled to chart Malaysia’s industrial transformation from 2023 to 2030. Keeping in line with the New Investment Policy (NIP), the NIMP 2030 aims to enhance future exports of more complex products from five sectors: aerospace; chemicals/petrochemicals; digital economy; electrical and electronics; as well as pharmaceuticals.

In terms of the incoming supply, the report says 2024 will see developers attempting to cater for specific industrial needs with an incoming supply of 3,940 units.

According to the report, the country’s retail segment recorded a 0.9% y-o-y increase in the occupancy rate in 1H2023. Sulaiman pointed out that the trend in the retail market shows that the supply grew but the occupancy rate has yet to return to pre-pandemic levels.

He said: “There is 14.9 million sq ft of space in the Klang Valley retail market, and the performance of the market shows that there was a drop in the occupancy rate until 2021 because of movement restrictions. We have yet to reach pre-2020 levels because of the sheer size of retail space that’s available. This leads to oversupply concerns.”

As such, Sulaiman said, a minor movement can be seen. Delayed projects are now being completed and the market remains vulnerable to further new injections, as the absorption for retail property is selective, he added.

He also highlighted that downward pressure on occupancy rates and retail rents is expected to continue, especially in older establishments that are losing out to newer and more modern malls.

The report also explains that, the opening of large malls such as The Exchange TRX and Pavilion Damansara Heights has brought more pressure to an already competitive market in the Klang Valley, with each bringing in an estimated one million sq ft of retail space.

As at 1H2023, the country had a total of 14.61 million sq ft of new retail mall space under construction. The top three locations contributing to this new supply are Kuala Lumpur (5.15 million sq ft), Selangor (3.56 million sq ft) and Penang (2.05 million sq ft).

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