Cautious optimism for 2024 property market

The Malaysia CREISS covers the prediction of key trends and insights in the commercial real estate market 


THE year 2023 has exhibited a reliable performance in both the economy and the real estate market. Looking ahead, the commercial real estate market anticipates a relatively stable and prudently optimistic environment in 2024. 

How did the property market do last year? The property market in Malaysia continued to strengthen as evident during the first nine months of 2023, witnessing a total of 293,095 transactions amounting to RM142.5 billion. The transactions exhibited stability in volume, with year-on-year increase of 8.8% in value (9M22: 293,115 transactions worth RM131 billion). Considering the resilient economic recovery and the looming geopolitical risks, the performance of the property market is expected to be cautiously optimistic in 2024. 

Interest Rates 

On the lending front, the central bank has decided to maintain its Overnight Policy Rate (OPR) at 3% in November 2023, a status quo following the March 2023 hike from 2.75% to 3%. The present OPR level, aligns with the ongoing evaluation of inflation and growth prospects, providing support to the economy. However, within the real estate realm, prospective property purchasers exhibit prudence in their investment decisions, influence by heightened borrowing costs. 

Spotlight on Data Centres

The data centre sector in the Asia Pacific (APAC) region is currently experiencing significant expansion, propelled by the growing demands for cloud computing, big data and e-commerce. The two key regions in Malaysia witnessing notable development are primarily located in the Klang Valley and Johor. With the increasing demand for Cloud services, this sector is expected to thrive in the near future. 

Predictions for 2024 

Respondents foresee positive potential in terms of capital value and rental across the industrial/ logistics, retail, healthcare and educational/institutional sub-sectors. However, there is an expectation of a moderation in the performance of the office sub-sector, as supply continues to outpace demand and the growing prevalence of hybrid work and work-from-home (WFH) trends. 

Additionally, respondents express a keen interest in exploring alternative investments this year, including serviced residence/hotel, industrial/business park as well as medical centre/wellness centre. 

Notable Risks in 2024 

Several risks loom on the horizon in 2024, including a high interest-rate environment, rising construction cost, inflationary pressure, global economic headwinds, as well as political uncertainty. These factors collectively pose challenges to commercial real estate investment. In a nutshell, the commercial property market remains positive yet challenging. 

To mitigate risks and adapt to the rapidly evolving landscape, focus could be directed towards digitalisation and environmental, social and governance (ESG) compliances. This approach will contribute to enhancing the value of sustainable real estate in the future. 

Moving into 2024, investments are expected to surge in the retail, healthcare and educational/institutional sub-sectors. Nevertheless, minimal interest has been observed in the office and industrial/logistics sub-sectors, with the hotel/leisure sector maintaining a trend similar to that of 2023. 

Factors affecting commercial real estate investments are: 

a) 68% of the respondents believe that foreign direct investments (FDI) will be more favourable due to a better economic condition. FDI in Malaysia is dominated by the manufacturing sector and is expected to continue attracting manufacturing investment to the country due to the availability of an ecosystem and resources. 

b) Ranked as second, 62% believed that the Business Confidence Index (BCI) would be positive, attributed to a stable economic environment and anticipated future developments. 

c) As for Budget 2024 and considering the government initiatives and policies, 60% of the respondents find it neutral towards the commercial property market. 

d) Amid the global headwinds and inflationary pressure, 57% thinks that the Malaysia’s economic figures (eg GDP, inflation, unemployment rate, interest rate, etc) are favourable, fuelled by resilient private consumption, domestic demand, tourism activities, an improved labour market and household spending. 

e) As for availability of good stock and investment opportunities, 54% of the respondents voted favourable due to the ready investment opportunities in real estate. 

f) On Malaysia’s digital frontier, 54% of the respondents find it favourable, in response to changing global trade patterns and rapid technological shifts. 

g) 51% of the respondents believe that the improved labour market is favourable for the commercial property market as the unemployment rate fell to 3.4% in the third quarter of 2023 (3Q23) (2022: 3.9%). With a better labour market condition, there will be a demand for commercial property for business expansion or even start-ups. 

h) Besides, 51% are optimistic about the Consumer Sentiments Index (CSI) is favouring the commercial property market. With an improved labour market, there is anticipation of a rise in consumer purchasing power and household consumptions. 

i) About 49% feel that yield and return on commercial real estate are favourable, indicating better potential for rental income and capital appreciation. 

j) In terms of political stability and change in government, 41% of respondents expressed a favourable opinion, while 32% opted for a neutral stance. A stable political environment plays a crucial role in enhancing investor confidence, both domestically and internationally. 

  • The views expressed are of the research team and do not necessarily reflect the stand of the newspaper’s editorial board. 

  • This article first appeared in The Malaysian Reserve weekly print edition