Knight Frank Malaysia believes the country's logistics sector could benefit from the impact of COVID-19 as more people are forced to do their shopping online.

The coronavirus (COVID-19) pandemic is sending global economies, including Malaysia’s, reeling, with hospitality, tourism and aviation-related segments among the hardest hit. 

The escalating number of infected cases has led to the country being placed under the Movement Control Order (MCO) until 14 April 2020.

At a glance:

• Knight Frank Malaysia has predicted that COVID-19 will lead to a dip in performance for all sectors of Malaysia's property market except for logistics.
• The agency believes the current imposition of Movement Control Order would incentivise many of the late adopters of e-commerce to try out online shopping as a means to purchase groceries or essential items, further accelerating the growth of last-mile deliveries fulfilment centres.
• Knight Frank Malaysia Managing Director Sarkunan Subramaniam said he expected the mounting pressure on the country's property market to continue.

With the exception of ‘Essential Services’, all other business activities have literally slowed or come to a complete halt.

But Knight Frank Malaysia Executive Director of Capital Markets, Allan Sim, said the current imposition of MCO would incentivise many of the late adopters of e-commerce to try out online shopping as a means to purchase groceries or essential items, further accelerating the growth of last-mile deliveries fulfilment centres and logistics services as a result. 

"The industrial property market outlook may be bright with additional demand for warehouse space and factories arising from the decentralisation strategies," he said.

Knight Frank Malaysia Executive Director of Capital Markets, Allan Sim. Source: Knight Frank

“Meanwhile, weakened air cargo demand arising from earlier trade tensions may see some positive momentum given the increasing need for quick turnaround distributions. 

"This may be an area to be further explored by industry players."

Prime Minister Tan Sri Muhyiddin Yassin announced the latest economic stimulus package worth RM250 billion (US$58 million) on 27 March.

Together with the earlier package, a total of some RM128 billion will be allocated to the people’s welfare, RM100 billion for businesses and SMEs, and RM2 billion to strengthen the economy.

Knight Frank Malaysia Managing Director Sarkunan Subramaniam said he expected the mounting pressure on the country's property market to continue.

"We expect lower activity in leasing and investment in commercial offices, while in the retail segment, rents will be under further pressure," he said.

"As for the residential market, we expect a 'wait-and-see' attitude."

Residential

Bank Negara Malaysia (BNM) reduced the Overnight Policy Rate (OPR) by 25 basis points to 2.5 per cent on 3rd March 2020, its second revision this year to provide a more accommodative monetary environment amid weaker global economic conditions and severe disruptions caused by the on-going Coronavirus (Covid-19) outbreak.

Me Subramaniam, Managing Director said in light of the current MCO, there were also disruptions to the property transaction process, such as difficulties in conducting property viewings and conducting of title searches.

“In addition, with the potential of more job layoffs due to the challenging business environment, we foresee an increase in non-performing loans that will conclusively lead to more auctions in the market," he said.

The central bank’s announcement on the automatic moratorium on loan repayments for small and medium enterprises (SMEs) and individuals to relieve the burden on businesses and households affected by the Covid-19 outbreak may, however, help to cushion the impact in the short term.

Knight Frank Malaysia Executive Director of Corporate Services Teh Young Khean. Source: Knight Frank Malaysia

Office

The COVID-19 pandemic has forced companies to limit or halt physical operations, pushing them to work more flexibly and remotely.

Both local and multinational companies may delay or put on hold their real estate decisions, resulting in a lower level of leasing activity.

Teh Young Khean, Executive Director of Corporate Services, Knight Frank Malaysia, said, business sentiment was at its lowest level, with many operations severely impacted by the outbreak.

"The sense of uncertainty will lead to slower demand as businesses and occupiers will likely continue to postpone major expansion/relocation decisions.

“In the immediate term preceding the lifting of the current MCO, co-working or flexible space may be less popular as there will be reduced desire for clients/members to congregate and interact face to face in one location.

"Revenue derived from memberships fees and events may be affected during this period although e-events will continue to progress.

“However, once confidence level improves with businesses back to work as usual, co-working or flexible space may be a good option for new occupier(s) and those looking to expand to navigate in the near term before committing to longer term plan.”

Retail

One of the main concerns of enforcing the MCO is the repercussions on social well-being (physical and mental) and economic performance of the country.

Malaysian retailers, especially those located at tourist zones, have been experiencing sales decline at their outlets at the onset of the COVID-19 outbreak.

Knight Frank Malaysia Associate Director of Retail Consultancy and Leasing, Ben Ooi said landlords and retailers had to step up measures during this MCO to educate the public when doing their grocery shopping, such as providing hand sanitiser and marking zoning on where to stand in the lifts.

“Landlords are also stepping up during the MCO to assist retailers by introducing relief measures, for example, rent-free package for non-F&B related retailers and rental rebates for retailers," he said.

Commercial Investment

During economic instability, real estate transaction volumes typically moderate.

Knight Frank Malaysia Executive Director of Capital Markets, James Buckley, said the profit recycling process could be interrupted by the effect of the COVID-19 outbreak, as institutional investors moved more cautiously during uncertain times.

“With the reduced leasing and investment activity, commercial office and retail rents will be further under-pressure," he said. 

"In the short term, investment transactions will be limited as viewings are not happening. 

"In comparison to other cities, feedback we often receive from overseas investors is that real estate asking prices do not reflect the actual value is given the country’s perceived risk profile and higher returns can be achieved elsewhere.

Mr Buckley added there would be a large gap in the expectation between sellers and buyers, with yields are bound to increase as values come under pressure.

"Genuine, motivated sellers will consider reducing their price, pushing yields higher," he said.

"Domestic investors should also consider the benefit of investing some of their capital in overseas real estate markets which will provide diversification in real estate returns and currency.”

Hospitalism / Tourism

According to Tourism Economics, global travel is expected to drop by 10 to 18 per cent, which is the biggest year-on-year drop amid the outbreak of COVID-19.

However, Mr Subramaniam said cheaper travel and accommodation cost may motivate and drive the sector once the COVID-19 pandemic is contained, serving as a "slice of positivity" in this sector.

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