Mega property developments take a breather in 2018

Market slowly correcting itself and finding its equilibrium between demand and supply, says PPC International’s MD

By IZZAT RATNA / Pic By AFIF ABD HALIM

Property developers are pulling the brakes on new large-scale developments planned for the year as the industry struggles to trim the glut, especially in the commercial sector.

The sector, which has been reeling for the past couple of years, is also facing a deluge of new units coming on board as ongoing projects are expected to be on the market soon.

PPC International Sdn Bhd MD Datuk Siders Sittampalam said the current soft sentiment in the commercial sector has resulted in supply contractions as developers adopt a more cautious approach.

“No prudent developer would venture into such projects in our current climate. I do not think the market would witness any big size developments in the near future,” he told The Malaysian Reserve (TMR).

He said the glut has allowed the market to find its equilibrium between demand and supply.

“The market is slowly correcting itself and we are seeing a slowdown in commercial developments,” the property consultant said.

But Siders does not think the temporary halt will last long as an avalanche of new developments will enter the market as it readjusts itself within a period of less than 10 years.

Siders said mega developments project that are being constructed and announced over the past couple of years are not organic in nature nor based on demand.

Most of the current excesses, he said, are mainly the result of a spillover effect from the current trend and projects that are speculative in nature.

“Developers were looking to invest in mega projects because there was a lot of hype in the industry and a lot of people were venturing into it as well.

That resulted in more supplies as opposed to the demand,” Siders added.

Laurelcap Sdn Bhd ED Stanley Toh Kim Seng said the serious glut in the office space, along with the increasing development cost, are but some of the contributing factors that would lead to the temporary pause in new integrated and large-scale developments.

“I believe that these types of developments will only be pushed into the market in five years time, due to the current market sentiment,” he told TMR.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the digital revolution is also expected to change the business landscape, as well as reshape buyers’ behaviour patterns and their daily routine.

“Since digitalisation has allowed people to be more mobile, office spaces will become obsolete because people will not need them anymore.

Today, more and more people are working from home. This is the new norm,” he said. According to Nawawi Tie Leung Property Consultants Sdn Bhd’s latest data, 2.3 million sq ft of total office stock was anticipated to be completed at the end of 2017, amounting to 81.7 million sq ft (7.6 sq m).

The average occupancy rate of office spaces declined from 81.4% to 80.4% in the third quarter of 2017 (3Q17), despite a recovery in economic growth coupled with rising oil prices.

The occupancy rate has trended downwards from 82.3% in 4Q16 year-on-year (YoY).

Capital value and average rental rate, meanwhile, stayed respectively flat at RM933 and RM6.03 per sq ft in 4Q17 YoY.

The consulting firm stated that while the impact will only be felt over the medium term, the freeze on new office approvals will, to a certain extent, help mitigate the current oversupply.

“Although developments such as the Tun Razak Exchange (TRX), the Merdeka PNB 118 and also the Sapura Tower (KLCC Lot 91) are almost completed, the Kuala Lumpur (KL) office market is likely to remain subdued due to the supply glut,” it stated.