By FARA AISYAH / Pic By TMR

The favourable performance of the healthcare and institutional property subsector is expected to continue this year on the back of growing demand and fundamentals, said Knight Frank Malaysia Sdn Bhd.

In its Malaysia Commercial Real Estate Investment Sentiment Survey 2019, the property consultant firm said the healthcare and institutional subsector had performed relatively well in 2018.

Knight Frank Malaysia ED (valuation and advisory) Keith Ooi said unlike conventional assets, healthcare and institutional real estate is a specialised alternative asset class that is less reliant on the economy.

“From the investors’ point of view, this specialised asset class is attractive as it provides certainty, by offering long-term leases with step-up rental.

“The healthcare and institutional subsector is truly a hidden gem. As investors become more familiar with this asset class, I foresee there will be more transactions of real estate in this subsector in 2019,” he said in a statement yesterday.

Based on the survey results, 33% of the respondents anticipate an increase in the yield of healthcare and institutional assets this year.

The respondents comprised developers (54%), commercial lenders (30%) and fund/real estate investment trust (REIT) managers (16%).

Ooi added that some respondents lamented the increased challenges in raising funds for commercial real estate, particularly the conventional assets.

However, the healthcare and institutional assets will be somewhat insulated from this challenge as lenders and fund/REIT managers have indicated that they may increase their exposure toward the subsector in 2019.

Meanwhile, Knight Frank Malaysia ED (capital markets) James Buckley (picture) said investing in the healthcare and institutional assets, such as education, is still a fairly new trend in Malaysia.

“However, it is possible that more deals will come to fruition from this subsector, with investors being attracted by its defensive qualities as it is less reliant on the general state of the economy, offers long leases and often comes with fixed increases in rent throughout the duration of the lease,” he said.

Buckley also said the logistics and industrial subsector has been poor before this, but investors are increasingly seeing the benefits.

“It offers higher yields, often with great covenants, and the construction is simple and fast. The rising demand for quality warehousing and distribution hubs bodes well for future rental growth,” he added.

Buckley said commercial properties in Malaysia do provide good yields relative to other markets in Asia Pacific, but incur higher relative borrowing costs, which generally exceed 5% and lower the cash-on-cash yield.

“This reduces the attractiveness of Malaysia’s property market in the eyes of international investors who compare the returns they can achieve elsewhere in the region.

“Owners need to become more realistic about their price expectations given the market situation,” he said.