INVESTMENT TREND A YEAR INTO COVID-19 2021 - Knight Frank
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2021
INVESTMENT
TREND A YEAR
INTO COVID-19
More than a year into Malaysia’s first lockdown on 18 The severe disruptions to supply chains globally has,
March 2020, the country continues its uphill battle to meanwhile, revolutionised e-commerce services,
contain the spread of novel coronavirus (COVID-19) driving the industrial property market and putting
amid rising infections and deaths with the latest phase logistics assets at the forefront to capture growth
of movement control order (MCO 3.0 – ‘full lockdown’) opportunities.
re-imposed from 1 June 2021. Measures such as travel
Also, the critical need for good medical and healthcare
restrictions, enforced business closures and
support amid the pandemic coupled with attractive tax
restricted social activities continue to curb domestic
incentives for new and expansion of private hospitals
activities, while businesses also have to contend with a
and ambulatory care centres as well as for
slowdown in demand.
manufacturing of pharmaceutical products (including
Malaysia’s economy contracted by 5.6% for all of vaccine) are expected to draw more investments into
2020, its worst performance since the Asian financial the healthcare segment. Demand for senior living
crisis and below the government’s earlier projection of facilities is also expected to grow as Malaysia
-3.5% to -5.5%. To date, a series of stimulus packages becomes an ageing population nation by 2030.
totalling about RM530 billion have been unveiled by
Going forward, our respondents are optimistic about
the government to provide targeted support to the
venturing into new growth areas which are logistics
Rakyat, businesses and micro, small and
and healthcare despite being still keen on the
medium-sized enterprises (MSMEs) while also
traditional sectors such as retail and office. As for the
strengthening the economy. These initiatives and the
hospitality sector, accelerated vaccination
easing of restrictions have helped to cushion the
deployment both locally and across the globe leading
COVID-19 impact with the economy gradually
to gradual opening of more international borders is
improving to post a lower contraction of -0.5% in the
key to travel and tourism recovery.
first quarter of 2021 (4Q2020: -3.4%).
The survey respondents are calling for more support
Moving forward, speedy and successful rollout of the
from the government in terms of tax incentives and
National Immunisation Programme will be key to the
rebates, revamping of infrastructure projects and
strength of country’s economic recovery.
expedition of the national vaccination programme to
Amid the prolonged pandemic, the hospitality industry drive national economic recovery and that of the real
continues to bleed due to international travel bans, estate investment market with the majority expecting
restrictions in interstate travel and cancellation of recovery only in 2022.
major events amongst other reasons. Similarly, the Stay Safe.
retail industry has also been badly impacted due to
various phases of lockdowns and subdued consumer
sentiment while the future of offices continues to Sarkunan Subramaniam
evolve post-pandemic as the work from home (WFH) Managing Director, Knight Frank Malaysia
trend looks here to stay.
1SURVEY
RESPONDENTS
27% Our respondents for this annual survey are made up of
Lender
representatives in the senior management levels of the
59% Malaysian commercial property industry. More than half (59%)
14% Developer of them are Developers, followed by Lenders (27%) and
Fund / Fund/REIT Managers (14%). About 44% of the respondents
REIT Manager
are from Klang Valley whilst Johor and Sabah had 20% and
24% respondents respectively. Penang had only 7%
respondents and the remaining 2% of respondents are from
Other States.
- Respondents’ Primary Businesses -
INVESTMENT PLAN BY SUB-SECTOR: 2021
The majority of Developers and Lenders have existing exposure to the retail market, one of the
sectors worst hit by the COVID-19 pandemic as well as the hotel / leisure segment. Moving into 2021,
however, there will be lesser investment and funding in these segments due to the prevailing
challenging market conditions.
As for the Fund / REIT Managers, their exposure is fairly distributed among all the key property
sub-sectors such as office, retail and industrial / logistics.
Lenders have expressed higher interest in funding the industrial / logistics sector since last year due
to the accelerated growth in e-commerce supported by technological advancements. They are,
however, expected to exercise more caution in providing financing for the hotel / leisure and
institutional segments. The COVID-19 pandemic has had a severe impact on the travel and tourism
segment as well as on higher education as countries shut their borders and universities / colleges
closed their premises in response to lockdown measures.
Office Retail Hotel / Logistics / Healthcare
Leisure Industrial
Sub-sector
Developer
Fund /
REIT Manager
Lender
Outlook
2ALTERNATIVE INVESTMENT:
2021 – 2023
25%
22%
20% 19% 19%
15%
13%
12%
10%
10%
5%
5%
0%
Senior Living / Serviced Suite / Data Centre Co-living / Student Co-working Others Theme Park
Retirement Hotel Suite Accommodation
23% 24% 13% 11%
20% 12% 13%
10% 15%
KLANG 19%
PENANG SABAH
VALLEY 9% 6%
13% 6% 6%
10% 13%
9%
19% 24% 25%
Serviced Suite / Hotel Suite
23%
Co-living / Student Accommodation 17%
Co-Working 42%
23%
Senior Living / Retirement Home 19% JOHOR OTHER
STATES
Data Centre
25%
4%
Theme Park
11% 7%
13% 8% 8%
Others
About a third (35%) of respondents in Klang Valley, cater to this silver hair market supported by rising
22% each in Johor and Sabah and 14% in Penang affluence and improved healthcare services. The
are looking to either buy or sell land / commercial positive response to the country’s suspended MM2H
building. Some see the pandemic as an opportunity programme in the past years also affirms Malaysia’s
to increase their land bank or property investment attractiveness as a desired location for retirement.
portfolio due to the record low borrowing rate and Malaysia is ranked 7th best place to retire in 2020
given that landowners / vendors may be more according to the 2020 Global Retirement Index.
motivated to sell amid this challenging market
environment. As for selected developers / The next most popular alternative investment choice is
landowners, they may wish to unlock the value of jointly shared by the data centre and serviced / hotel
their dormant / undeveloped land given the suite segments, with 19% share each. Despite the weak
opportunity to generate cash inflow and reduce market sentiment and cautious outlook, there are
debt / gearing during this trying time. developers who are still keen to explore the serviced /
hotel suite segment.
Senior living or retirement home has emerged as a
popular alternative investment choice in this year’s A surge in demand for data and cloud services to
survey garnering 22% of votes due to the country’s support digital transformation and business
ageing population. Data from the Department of sustainability arising from growing remote working
Statistics (DOSM) showed that as of 2020, circa culture, is drawing the attention of commercial real
7.15% of the country’s total population of 32.73 estate players.
million are aged 65 years and above and with the
current trajectory, the population group is projected Amid this protracted pandemic outbreak, Co-working
to double to 14% by 2044 (aged nation) and to 20% and Co-living or student accommodation appear to be
by 2056. Thus, there appears to be opportunities to less appealing for investment due to greater health and
hygiene awareness and the growing remote work culture.
3FACTORS AFFECTING COMMERCIAL
REAL ESTATE INVESTMENT: 2021
The two favourable factors affecting the real estate investment market are the current OPR, which is at its
record low of 1.75% since July 2020, and the three additional stimulus packages which were unveiled in
January, March and May this year to further support economic recovery. It is to be noted that on 28 June
2021, the government had unveiled another aid package viz the RM150 billion PEMULIH to help cushion
impact of the latest full lockdown (MCO 3.0).
This latest survey findings revealed that there are more factors negatively impacting investment in the
commercial property sector in year 2021. The top three non-favourable factors (> 70% of respondents)
were the third-wave of the novel coronavirus outbreak, the current state of economy / government policies
and cancellation of the HSR project. The other unfavourable factors were compression of yield & lower
returns and slow COVID-19 vaccine redeployment.
The third wave of outbreak leading to partial and full lockdowns has derailed economic recovery. Stricter
containment measures such as travel restrictions, enforced business closures and restricted social
activities continue to curb domestic and economic activities.
Indicators
OPR 1.75%
More Stimulus Packages Favourable
Third-wave of COVID-19
Cancellation of High-Speed
Rail (HSR) project
Current State of Economy /
Government Policies
Unfavourable
Yield / Return
Speed in the Rollout of National
Immunisation Programme
4RENTAL RATE / AVERAGE ROOM
RATE (ARR) BY SUB-SECTOR
Office Retail Hotel / Leisure Industrial Logistics
Sub-sector
Decrease 74% 72% 87% 16% 5%
Stagnant 22% 24% 9% 66% 46%
Increase 4% 4% 4% 18% 49%
About half (49%) of the respondents anticipate the logistics sub-sector to experience a hike in rental
rate whilst 66% of them expect industrial rents to remain flat. On the other hand, more than 70% of
respondents expect rents for office and retail space to fall.
As expected, in the hotel / leisure sector which is severely impacted by the pandemic, 87% of
respondents foresee further decline in average room rate as most international borders remain
closed amid resurgence of infections. Locally, the current interstate travel restriction has temporary
stalled recovery in the domestic travel and tourism industry.
OCCUPANCY RATE BY SUB-SECTOR
Office Retail Hotel / Leisure Industrial Logistics
Sub-sector
Decrease 72% 67% 83% 15% 4%
Stagnant 22% 24% 13% 57% 35%
Increase 6% 9% 4% 28% 61%
Similar to the rental trend, the occupancy rates of retail malls and offices remain under pressure amid
challenging business environment. Some 72% of respondents expect office occupancy to fall while in
the retail segment, 67% foresee higher vacancy going forward. In the hotel / leisure segment, 83% of
respondents expect average occupancy rate to fall in 2021 / 2022 as ‘normal’ travel post COVID-19 is
not expected to resume until 2023.
While demand for industrial space is expected to remain resilient (57% and 28% of respondents
expect stable and improved occupancies), the e-commerce boom will continue to drive demand for
logistics assets with 61% of respondents anticipating higher absorption of space.
5CAPITAL VALUE BY SUB-SECTOR
Sub-sector
Decrease Stagnant Increase More than 50% of respondents
expect to see a spike in the capital
Office 48% 48% 4% values of healthcare (60%) and
logistics (58%) assets.
Retail In the office and retail
45% 52% 3%
sub-sectors, about half of the
respondents expect the capital
Hotel / values to hold while in industrial
Leisure 78% 19% 3%
and institutional segments, the
percentages of respondents are
Industrial 8% 67% 25% higher at 67% and 70%
respectively.
Logistics 3% 39% 58% Again, the hotel / leisure
sub-sector is expected to perform
poorly with falling capital values
Healthcare 6% 34% 60% (78% of respondents).
Institutional 23% 70% 7%
YIELD PERFORMANCE BY SUB-SECTOR
Sub-sector
Decrease Stagnant Increase With the exception of the
healthcare and logistics
Office 51% 41% 8% sub-sectors where the yields are
expected to rise, 78% of
respondents expect it to fall in the
Retail hotel / leisure sub-sector.
53% 37% 10%
Meanwhile, about two-third of
Hotel / respondents expect the yields for
Leisure 78% 14% 8%
the industrial and institutional
segments to remain at previous
Industrial 14% 66% 20% year’s level.
In the office and retail
Logistics 8% 38% 54% sub-sectors, about half of the
respondents expect compression
of yield while 8% and 10% of them
Healthcare 6% 30% 64% expect the yields to rise in
anticipation of lower values.
Institutional 23% 67% 10%
62021 MOST ATTRACTIVE
SUB-SECTORS BY REGION
SABAH
• Industrial / Logistics
• Retail
• Healthcare
PENANG
• Industrial / Logistics
• Healthcare JOHOR
• Industrial / Logistics
• Retail
• Healthcare
KLANG VALLEY
• Institutional (Education)
• Office
• Industrial/Logistics
• Retail
• Healthcare
Penang, Sabah and Johor are among the top five states world's top health tourism destinations thanks to its
in the country in terms of highest approved investments affordable and high-quality medical treatment.
in the manufacturing sector after Selangor and Sarawak. Penang is one of the most preferred destinations for
Collectively, these five states contributed nearly 73.4% the majority of health tourists.
of Malaysia’s approved investments in year 2020.
Meanwhile, despite the imbalance in supply and
The thriving manufacturing industry in these states demand, the Klang Valley office market remains
coupled with the readiness of infrastructure by road and attractive among the respondents in anticipation of
rail as well as proximity to established air and sea ports good bargains. The respondents are most optimistic
continue to drive growth in the logistics segment. on Klang Valley’s institutional market as private /
international schooling becomes more popular with
The healthcare segment, particularly in Klang Valley and the growing affluent local population.
Penang, has also captivated the eyes of developers and
investors. Malaysia is currently ranked among the
EXPECTATIONS ON MARKET RECOVERY
70%
63%
61%
60%
57%
50%
46%
45% 44% 43%
41%
40% 38% 38%
35% 36%
32%
30%
30%
26% 26%
22%
20% 18%
14% 14%
12%
10% 7%
9% 8%
7% 7%
6%
4% 4% 3%
2% 2%
0%
Office Retail Hotel / Leisure Industrial Logistics Healthcare Institutional Overall
Commercial
2H2021 2022 2023 Beyond 2023
742% 35%
37%
28%
25% 25%
10% 12%
30% 10%
23% 23%
DEVELOPER FUND / LENDER
REIT MANAGER
All sub-sectors with exception of the hotel / leisure, office and infections and coupled with individuals' reticence to
retail segments are anticipated to see a recovery by 2022. travel long-haul, more hotels nationwide are halting
operations temporarily (with some permanently). About
About half of the respondents (52%) anticipate the overall
62% of respondents expect this sector to recover only
commercial property market to recover only by 2023 and
by 2023 and beyond as ‘normal’ travel post COVID-19 is
beyond although some 46% of them are more optimistic,
not expected to resume until 2023.
expecting recovery next year (2022).
In a nutshell, key players in the commercial property
A deeper observation unveils that 42% of Developers are
industry are optimistic on the logistics / industrial and
comparatively more optimistic in the 2022 recovery
healthcare sectors but remain cautious on the traditional
compared to 37% of Fund / REIT Managers and 35% of
retail and office segments due to the oversupplied
Lenders. Another 28% of Developers and 25% each of Fund /
market as well as the hotel / leisure industry.
REIT Managers and Lenders anticipate recovery to only set in
by 2023. In order to support economic recovery and lift
commercial real estate sentiment, the respondents have
The majority of respondents (> 60%) opined that the logistics
also expressed their Wish List for Budget 2022 and
and healthcare related sectors will continue to do well in
ranked first in the list is the lowering of tax rates /
2H2021. The resurgence in the number of COVID-19 cases
provision of tax incentives or tax holiday for small
leading to the re-imposition of various phases of MCO
medium enterprises (SME’s), corporates and individuals.
continues to disrupt supply chains leading to growth in the
Next on the list are the implementation of additional
e-commerce market and higher demand for added
stimulus packages, resumption of the HSR project,
healthcare facilities.
acceleration of the vaccination programme, extra
In the retail sub-sector, the percentage of respondents incentives to attract FDI, revival of MM2H programme,
expecting recovery in 2022 and 2023 / beyond are fairly split extension of the Home Ownership Campaign (HOC) and
at 45% and 46% respectively. reduction or waiver of Real Property Gains Tax (RPGT).
About 61% of respondents anticipate the office segment, Moving forward, political stability and the speedy and
which is facing growing imbalance in supply and demand successful implementation of the National Immunisation
(particularly in Klang Valley), to recover only by 2023 and Programme coupled with the ongoing and revival /
beyond and this could be attributed to changing workstyle resumption of mega infrastructure projects throughout
and growing work from home (WFH) trend. the country such as the Mass Rapid Transit Line 3 (MRT3)
in Klang Valley, the Penang Transport Master Plan
In the short to mid-term, the overall outlook for the hospitality
(PTMP), the Rapid Transit System (RTS) in Johor, the
segment is one of pessimism as it is among the worst hit
Pan-Borneo Highway in Sabah and the East-Coast Rail
sectors that include tourism and aviation related industries.
Link (ECRL) would aid in Malaysia’s economic recovery
Despite the global rollout of COVID-19 vaccines, many
and assist in lifting investors’ confidence and sentiment
international borders remain closed due to resurgence of
in the commercial real estate investment market.
© Knight Frank 2021
KEY CONTACTS:
Sarkunan Subramaniam | Managing Director | (603) 2289 9633 | sarky.s@my.knightfrank.com
Judy Ong | Executive Director | (603) 2289 9663 | judy.ong@my.knightfrank.com
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Publisher: Knight Frank Malaysia Sdn. Bhd. Co Reg. No. 200201017816 (585479-A) 8You can also read
