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Sunday, May 17, 2009

Bargain hunting in downturn

The commercial markets are still holding up fairly well, especially on the income-generating assets or investment grade properties in both the retail and office segments.

Regroup Associates Sdn Bhd executive director Paul Khong says, however, that market activities are relatively slower this year and are` expected to continue through the end of the year.

“Most buyers are looking out for good bargains. It is really a buyers’ market now but many are taking a conservative stand on major purchases although they can afford it. They intend to wait a little longer,” he says.

He adds that there are still local buyers who are looking around for deals, and expectation of yields/returns is now slightly higher due to current market conditions.

“Cash is king again,” he says.

DTZ Nawawi Tie Leung Property Consultants Sdn Bhd executive director (research and consulting) Brian Koh says the investment market had made a turn for the worst in the first quarter of this year against the unfolding of the global economic crisis which began in the United States.

“Most institutional funds stayed by the sidelines as the market struggled to find a new price level in the midst of high volatility in the capital market,” he says.

And although Bank Negara is expected to continue to ease monetary policy to boost the economy, Khong does not expect new funding to be easily available or cheap.

“The market has been relatively slow with few or no major transactions. While the number of deals remain the same as in quarter four last year, total investment value for the quarter is only RM113mil compared to RM466mil in the previous quarter,” he says.

Based on the latest report by DTZ, it says that there are two mid-sized office transactions in this quarter with relatively high prices and low yields and both are purchased by the government-link-companies.

Perbadanan Nasional Bhd bought Wisma Glomac 3 while EXIM Bank purchased Menara Bank Industri.

“The transaction prices range from RM469 psf to RM639 psf, and do not seem to be affected by current realities. The net yields are 5% and 5.3% respectively,” it says.

Based on that, the report points out that demand for office space has softened with slow leasing enquiries for office space in the first quarter this year.

Prime office space continued to experience declining rents for the second consecutive quarter, which eased 2.85% quarter-on-quarter to RM6.14 psf per month.

The office market is expected to experience continued pressure on rental rates due to the large stock of incoming supply of new office buildings during the year.

With 4.13 million sq ft expected to be completed this year and 6.55 million sq ft more hitting the market in 2010 and 2011, developers are more likely to defer their planned projects, according to the report.

However, it says that despite slower demand and increasing supply, the occupancy level is still holding up well.

Grade A space in the city centre remains resilient at an average occupancy of 95% compared to 90% in quarter four of 2008.

The report says this is mainly attributed to Kuala Lumpur’s tight supply of prime space, coupled with the fact that Kuala Lumpur has benefited from strong, broad-based demand from a wide spectrum of growth sectors such as oil and gas, Islamic finance and other domestic-driven activities.

Touching on the retail side, Koh says the retail sector continues to see some investment activities, as the sale of basic household necessities is believed to still have room for growth.

“The market saw AEON Co (M) Bhd, the Japanese operator of Jusco stores, entering into a sale and purchase agreement for a piece of land together with a proposed retail centre at Bandar Sri Permaisuri for RM107.2mil.

“This acquisition represented the continued aggressive expansion of Jusco in Malaysia in its attempt to accelerate its retail business to compete with the hypermarkets,” he says.

With price declines and yields becoming more attractive in the major regional financial centres, offshore funds are finding these cities more attractive and are thus bypassing the Malaysian market for the time being.

“While there are some opportunistic funds actively scouting the Malaysian market for distressed assets, to date there has been no fire sale,” he says, adding that with prices in Kuala Lumpur showing no sign of a major decline, potential buyers, especially foreigners, are happy to stay sidelined until better opportunities surface.

“This is expected to be in the second half of the year as the recession bites harder. The market is likely to consolidate slowly in the next two years with new supply and economic factors being the key drivers of values and activities,” Koh says.

By The Star (by EDY SARIF)

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