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Saturday, January 2, 2010

2009 and beyond

I know I will never see another year like 2009. I doubt I want to. We entered the year feeling like schoolboys after a mass caning. At least seven major deals had been aborted including the sale of Menara Citibank, and with buyers in full flight, we were wondering when the pain would end.

First indications of resilience were seen when the top-end condominium market refused to crash. Come May and June, we were asking ourselves where all the fire sales were. Why hadn’t all those foreign speculators cashed in their chips and led the stampede for the door? The One KL condominium project near KLCC was completed mid year and most buyers clearly opted to hold on to their investments.

In the same period Eastern & Oriental Bhd launched the first tower of its St Mary Residences serviced apartments with unerring finesse and met with immediate success. Confidence returned and cashed-up developers began scouting for new sites.

The subsequent re-introduction of real property gains tax plus a huge pipeline of new projects will continue to hold the market in check. Buyers are going to be very selective and looking for value for money.

The luxury condo market may not be out of the woods but it now has its bright patches. For example, prime suburbs such as Bangsar, Damansara Heights and Bukit Tunku are subject to tight planning controls over new high-rise development and those that are approved may enjoy some premium value.

Office rentals peaked at the end of 2008 and have since softened moderately by about 15%. The market was at a standstill in the first half of 2009, with tenants in the sidelines, waiting for signs of stability in the global economy.

The Icon and G Tower neared completion, both excellent office buildings and each offering about 500,000 sq ft of space on Jalan Tun Razak, and we watched to see how they would fare. Recently, both have announced some lettings and I can only say that the six months running up to completion of any speculative office building is invariably the most stressful; one has to stay focused and have faith in the future.

In fact, the new supply of office space over the next three years is not excessive, and while rents may remain competitive in 2010, the medium-term outlook is good and as always, better property management will encourage better tenant loyalty.

Last year, GIC were fortunate to achieve their sale of Menara Stanchart at a reported RM950 per sq foot (psf) just before the crash. Other sellers were not so lucky and YNH Property Bhd’s massive office sale to Kuwaiti Finance House at a reported RM1,258 psf have been aborted.

Despite weakening rentals and slightly higher yield expectations, we see office capital values remaining steady and generally ranging between RM800 to RM1,100 psf in 2010.

It has been a period of consolidation in the retail sector and average occupancy rates of 42 selected malls in the Klang Valley dipped slightly to 92.3%, while rents were stable. Fortunately future supply is moderate, with only 4.28 million sq ft being added to the existing inventory of 40.7 million sq ft in the next three years.

We may see an extensive renovation at the 1 Utama shopping centre in 2010 and the major complexes will continue to go from strength to strength, supported by the country’s young demographics.

The end of 2009 has been highlighted by the surprise announcement of the re-sale of the Bok House site at a record RM2,200 psf.

The clear message is that the market will always continue to experience fluctuations, being either the normal seven to 10-year cycles resulting from development activity; or from major external impact such as we saw last year.

Events in Dubai have shown that there is no such thing as a straight line progression. In the medium term, economic and population growth will support a steady appreciation in values and bring its rewards.

In property, market knowledge, timing, and holding power are the keys to success.

·Chris Boyd is executive chairman of Regroup Associates Sdn Bhd property consultants.

By The Star (by Christopher Boyd)

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