KUALA LUMPUR: Knight Frank Malaysia expects a reasonably stable and cautiously optimistic environment in the commercial real estate sector this year, given that 2023 demonstrated a reliable performance in both the economy and the real estate industry.
Serviced residences and hotels in Klang Valley, Penang, and Sabah are in high demand as a result of rising tourism and the hotel industry's post-pandemic recovery, according to Knight Frank's most recent report, the Malaysia Commercial Real Estate Investment Sentiment Survey (CREISS) for 2024.
The findings of CREISS include a close look at key players' sentiments on market performance, sub-sector investment activity, and factors impacting the market.
Business and industrial parks are also very popular, particularly in areas like Johor, Penang, and the Klang Valley.
In light of the growing digital economy, these areas are drawing investors who are looking for potential in logistics and industrial centers, according to Amy Wong, executive director of research and consultancy at Knight Frank Malaysia.
According to Wong, a look into the opinions expressed by respondents regarding the investment landscape between 2024 and 2026 indicates an increasing inclination towards alternative investments.
Notable areas of interest include co-living/student accommodation, co-working/flexible office spaces, and the data centre industry, which mirrors changing work preferences and technological developments.
In 2024, the subsectors of retail, healthcare, and education/institution are expected to see favorable increases in investments, according to the respondents.
On the other hand, the office and industrial/logistics subsectors show very little interest.
"The 2024 performance forecast reveals optimistic expectations for the industrial and logistics sectors, with 62 per cent anticipating an increase in capital appreciation and 68 per cent foreseeing a positive outlook on yields in the logistics sub-sector.
"While stability is predicted for office, retail, hotel/leisure, healthcare, and educational/institutional sub-sectors, concerns exist for the office sub-sector due to potential decreases in capital value and yields of older assets, attributed to substantial supply impacting asset performances," Wong said.
The survey also highlighted positive projections for rental values in industrial/logistics properties and the hotel/leisure industry.
However, challenges, such as a potential decrease in office rents and occupancy rates in older buildings, are noted, particularly in the face of significant incoming supply in the Klang Valley office market.
"Considering the resilient economic recovery and the looming geopolitical risks, the performance of the property market is expected to be moderate in 2024," she said.
The property market in Malaysia continued to strengthen, as evident during the first nine months of 2023, witnessing a total of 293,095 transactions amounting to RM142.5 billion.
The transactions exhibited stability in volume, with a year-on-year increase of 8.8 per cent in value (9M2022: 293,115 transactions worth RM131 billion).
Keith Ooi, group managing director of Knight Frank Malaysia, said that 2023 showcased a resilient performance for both the economy and the real estate market, setting the stage for a stable and cautiously optimistic outlook in 2024.
"The surge in demand for data centres in the APAC region, coupled with growing interest in alternative investments such as serviced residences and industrial parks, underpins the resurgence of the commercial real estate market post-pandemic," he said.
On factors affecting commercial real estate investment, 68 per cent of the survey's respondents believe that foreign direct investments (FDI) will be more favourable due to better economic conditions.
FDI in Malaysia is dominated by the manufacturing sector and is expected to continue attracting manufacturing investment to the country due to the availability of an ecosystem and resources.
As for Budget 2024 and considering the government initiatives and policies, 60 per cent of the respondents find it neutral towards the commercial property market.
Amidst global challenges, a majority expresses optimism about Malaysia's economic performance, digital evolution, and the real estate market, driven by factors such as a resilient labour market and positive consumer sentiments.
Ooi said that the favourable outlook on political stability further contributes to enhanced investor confidence on both domestic and international fronts.