Key players in the commercial property industry remain cautious about the performances of the traditional retail and office segments in the second half of this year (2H 2021)
They are also cautious about the hospitality industry, this is according to a survey by Knight Frank Malaysia.
The hospitality industry continues to bleed due to international travel bans, restrictions in interstate travel, and cancellation of major events amongst other reasons due to the ongoing Covid-19 pandemic.
A number of hotels across Malaysia have ceased operations and many businesses have shut down since early last year.
Similarly, the retail industry has also been badly impacted due to various phases of lockdowns and subdued consumer sentiment.
Malaysia continues its uphill battle to contain the spread of the virus more than a year after the first lockdown on March 18, 2020.
Despite the kick-off of the National Immunisation Programme since end-February, 2021, the resurgence of Covid-19 cases has led to the country being placed under several movement control orders this year, with the latest being the full lockdown (FMCO), re-imposed effective June 1, 2021.
Knight Frank Malaysia deputy managing director Keith Ooi said these latest survey findings revealed that there are more factors negatively impacting investment in the commercial property sector this year.
The top three non-favourable factors (> 70 per cent of respondents) were the third wave of the virus outbreak, the current state of economy/government policies, and the cancellation of the Kuala Lumpur-Singapore high-speed rail project.
The other unfavourable factors were compression of yield and lower returns, as well as slow Covid-19 vaccine redeployment.
There is optimism among the key players when it comes to the logistics and healthcare sectors.
Ooi said it is no surprise that logistics was the clear winner as the preferred sector to continue to do well in 2H 2021.
He said the logistics industry in Malaysia has been growing steadily in recent years due to the higher e-commerce penetration rate.
This, coupled with the structural shift towards omnichannel retailing, has led to an increase in demand for modern warehousing space to meet the surge in last-mile delivery, he said.
"Prime logistics asset values are expected to rise further over the near term underpinned by strong growth in the e-commerce market and again, with interest rate staying low in the foreseeable future, yields are expected to remain at low levels," he said.
Ooi said the severe disruptions to supply chains globally which revolutionised e-commerce services, continues to drive the logistics sector whilst the critical need for good medical and healthcare support amid the Covid-19 pandemic coupled with attractive tax incentives is expected to see growth in the healthcare sector.
According to the survey, more than 50 per cent of respondents expect to see a spike in the capital values of healthcare (60 per cent) and logistics (58 per cent) assets.
In the office and retail sub-sectors, about half of the respondents expect the capital values to hold while in the industrial and institutional segments, the percentages of respondents are higher at 67 per cent and 70 per cent respectively.
In the hotel/leisure sub-sector, 78 per cent of respondents expect capital values to fall.
Knight Frank Malaysia executive director of capital markets, Allan Sim, said the survey respondents have strong convictions on the industrial/logistics sector which they opined should continue to perform well under the current economic climate.
"It is understandable that the industrial and logistics sectors are favoured by the respondents as they remain the few resilient property classes that are still up and running during this volatile time. Appropriately, these very same sectors are being voted by respondents to be leaders charting the journey of recovery for the commercial property market," said Sim.
Sim said the survey highlighted that the ecosystem for industrial and logistics is in unison as developers and fund or REIT (real estate investment trust) managers' appetite for investments into the industrial / logistics sector are harmoniously complemented by lenders who are also expressing higher interest in funding these projects or assets.
"When examining further, we noted that the market is perceiving the impact of the Movement Control Order (MCO) to be more severe for manufacturers that are reliant on human workforce, as compared to logistics that are deemed to encounter fewer downside risks amidst lockdowns and may even flourish by way of e-commerce substituting general retail. However, attention has to be accorded to the facet of logistics that are serving the manufacturing sector, of which demand will be subject to the disruption of supply chains on a global scale," he said.
"All in all, we concur with the respondents' anticipation for an increase in rental and occupancy rates for the logistics sector. This will act as strong support for the potential of increase in capital values of logistics assets and further reinforcing the standing of logistic assets class as a darling amongst the investors, fund managers, and developers," added Sim.
Meanwhile, Knight Frank Penang executive director Mark Saw said the survey revealed that the healthcare segment in Penang has captured the interest of developers and investors.
As Malaysia is currently ranked among the world's top health tourism destinations due to its affordable and high-quality medical treatment, Penang is one of the most preferred destinations for the majority of health tourists, he said.
"Medical tourism, previously being one of the major contributors to the Penang economy, has been badly affected due to the ongoing pandemic and travel ban. In January this year, the Penang State Government unveiled the joint-venture project between Penang Development Corporation (PDC) and iHeal Health Sdn Bhd to develop the Penang Medical and Digital Technology Hub on 120.4 hectares of land at Bandar Cassia in Batu Kawan. This project will help to promote Penang as the ASEAN hub for international standard medical and digital technology," he said.
Saw said other notable upcoming healthcare institutions scheduled to make their debut in Penang include Columbia Asia, Sunway Medical Centre, Penang Islamic Hospital, Georgetown Specialist Hospital, and they are expected to boost the state's medical tourism sector by offering quality healthcare services.