Knight Frank: Improve the economy and commercial property glut will come down

A lot of people are simply looking at the supply figures instead of rejuvenating the demands, says MD


Sarkunan says it is normal for these supplies to increase over time (Pic by Muhd Amin Naharul/TMR)

The government should look at ways to improve the economy instead of looking at unsold property figures to confront the rising glut involving commercial properties.

Knight Frank Malaysia Sdn Bhd MD Sarkunan Subramaniam said improvement in the economy would address the glut issue involving office and retail properties faced by the sector.

“Don’t look at the space and say it is too much. What is needed, the concern we should have is not a concern as to the number of buildings coming into the market.

“We should ask ourselves why there are not enough occupants, not growing and having more businesses to take up the space,” he said in Kuala Lumpur yesterday.

Sarkunan said a lot of people are simply looking at the supply figures instead of rejuvenating the demands.

“I challenge all of the government officials to look on how to improve the economy rather than looking at the space figure, in order to attract businesses from the region and bring more occupants into this country.

“And that is how InvestKL Corp and others are doing to fill up those spaces that are vacant,” Sarkunan said.

He also denied claims of too many office or retail spaces and said the situation would correct itself eventually.

“Let the free market control itself and let us not interfere into the free market,” he said.

On Wednesday, Bank Negara Malaysia (BNM) in its first-half financial review revealed that the persistent oversupply in the office and shopping complex segments had deteriorated the vacancy rates further in the first quarter of 2018 (1Q18).

The number of unsold properties continues to rise and has remained a concern for the central bank.

BNM said the number of unsold housing units increased to 146,196 units as at the end of 1Q18.

The number of unsold properties was 129,052 units as at end-September 2017, according to previous BNM data.

“Imbalances observed in the property market continue to persist,” said the central bank, which had in the past been issuing warnings about the glut in the sector.

Of the total number of unsold units, over 80% were priced above the affordable range ceiling of RM250,000.

BNM added that excess supply of office space and shopping complexes is also expected to continue as vacancy rates deteriorated further in the first three months of the year.

Sarkunan said it was normal for these supplies to increase over time.

“Every year, we have about 10% addition of supply into the market. In any growing emerging economy, that is the norm.

“But when you are already at an optimum stage (advanced economy market), our growth rate would be small, about 2%-3% of new space coming into the market.

“For Malaysia, the kind of supply that is coming in is similar to what an emerging economy is providing for new businesses,” he said, adding that the Entrepreneur Development Ministry plays a very important role such as encouraging start-ups to fill up the space.

When asked to comment on whether the retail and office sectors are expected to remain in the lowdown in the next five years, Sarkunan replied that the market would slowly recover in the next two years.

“Yes, as more buildings come, the vacancy rate will increase. In the medium term, we will see it a little bit worse off. But then, it will start to recover,” he said.

Sarkunan added that the commercial sector would follow through as people are starting to look at Malaysia now.

“Now is more of a ‘look and see’ approach as they are waiting for a clearer direction from the government,” he said.

Sarkunan explained that developers would certainly slow down in producing these sort of assets if the economy does not fix and improve itself.

He said the overbuilding of the retail sector, for example, was due to every development wanting to have its own shopping centre.

“They think it’s classy. Very soon, however, a lot of these shopping centres may be repurposed, if they are not really serving the community,” Sarkunan said, citing the example of the International Medical University which was previously a shopping centre.

‘They can easily resurface and become a destination mall with specific purpose, which could still attract people,” he said.

Sarkunan added that the case would be similar for the office sector too, through the efforts of repurposing and with the help of innovation from building owners.

“If you look at the city offices in the older buildings, a way to help them is maybe to turn them into three-or four-star hotels or even accommodations for students,” he said.