A new survey from Knight Frank Malaysia has shown investors in the country are adopting the “wait and see” approach as local and global economies screech to a halt amidst the COVID-19 pandemic.

With the deadly virus sending half the world into semi or total lockdown, the commercial property markets of Penang, Johor and Sabah are expected to remain in the doldrums as weak sentiments prevail for the remainder of the year. 

Knight Frank Malaysia asked experts from the respective cities about the impact of the pandemic on market sentiment thus far. 

Knight Frank Penang Executive Director Mark Saw. Source: Knight Frank

Penang Sentiment

The Penang office market has experienced rising interest due to its relatively healthy level of supply and commendable occupancy rate and with limited incoming supply, this sector has become the bullseye for some investors / developers.

However, Knight Frank Penang Executive Director Mark Saw said there may be some pullback to the co-working segment in the immediate term preceding the lifting of the movement control order (MCO) as there will be reduced desire for clients or members to congregate and interact face to face in one location.

“Undoubtedly, the industrial sub-sector will continue to be a beacon of Penang’s economy," he said.

At a glance: 

• Knight Frank Malaysia has released Regional Commercial Real Estate Investment Sentiment Survey (RCREISS) 2020 for Penang, Johor and Sabah.
• Johor investors have been more cautious and defensive in the wake of COVID-19, particular within the office and hospitality sub-sectors.
• The Penang office market has experienced rising interest due to its relatively healthy level of supply and commendable occupancy rate and with limited incoming supply, this sector has become the bullseye for some investors / developers.

“Post COVID-19, co-working space with its unique selling points (USPs) offering flexibility, hassle-free and low set-up cost is expected to continue attracting small companies and self-employed individuals."

Mr Saw also predicted an upcoming trend of branded residences as seen by Marriott establishing its first branded residences footprint in Penang.

“Marriott Branded Residence by the waterfront of Persiaran Gurney in Penang Island is set to be Georgetown’s first premium branded residences when completed in 2023," he said

"Another notable incoming branded residence development in Penang is the Angsana by Banyan Tree at Teluk Bahang.

“With the soft property market over the past few years, some developers have changed tact and moved to develop branded residences with an adjoining hotel.

"By selling a brand for a residence at a premium and having a hotel support its management and services, developers have found a way to reduce the risk of developing hotels by selling international branded residences to savvy and well-heeled investors."

Knight Frank Johor Branch Head Debbie Choy. Source: Knight Frank

Johor Sentiment

According to Knight Frank, Johor investors have been more cautious and defensive in the wake of COVID-19, particular within the office and hospitality sub-sectors.

Knight Frank Johor Branch Head Debbie Choy said the logistics / industrial segment stood out as the most encouraging sub-sector in Johor.

“The outlook for the state’s logistic sub-sector remains upbeat supported by the presence of three seaports, namely Port of Tanjung Pelepas, Johor Port and Tanjung Langsat Port as well as the Senai International Airport," she said.

“We anticipate that REITs will resume their search for similar assets post-COVID-19 as demand continues to remain strong within certain localities. Knight Frank continues to receive active enquiries on industrial type opportunities.

The healthcare sub-sector in Johor has been growing steadily with the completions and expansions of more private medical facilities.

The year 2019 saw the completions of three hospitals, namely Columbia Asia Tebrau Hospital, KPJ Bandar Dato' Onn and KPJ Batu Pahat while KPJ Puteri Specialist and KPJ Kluang are currently under expansion.

Ms Choy said Johor's proximity to Singapore created demand from foreign patients due to the favourable currency exchange and quality of medical services offered.

The 2020 survey also revealed that interest in healthcare investment is not limited to hospitals offering medical treatment but also other alternative investments focusing on wellness such as retirement village and senior living.

About 45 per cent of the survey respondents who are already investing in Johor, are exploring such alternative concepts.

The outlook for the healthcare sub-sector appears to be promising with more than 50 per cent of survey respondents foreseeing higher yield and returns in 2020 compared to the previous year.

Knight Frank Sabah Executive Director Alexel Chen. Source: Knight Frank

Sabah Sentiment

Sabah has been progressively gaining prominence as one of Asia’s popular travel destination, with its rich natural endowments ranging from the wide cultural heritage of its natives, exotic flora and fauna, biodiversity from the ocean deep to mountain high and year-round tropical weather.

In 2019, the state welcomed 4.2 million visitor arrivals from 1.1 million in 2002, evident of the growing importance of the tourism industry to the state’s economy, after the agriculture and oil & gas industries.

Knight Frank Sabah Executive Director Alexel Chen said the COVID-19 pandemic had disrupted the thriving tourism industry and its related services as a result of the state government announcing the suspension of all direct flights from China and South Korea.

"The implementation of the MCO and travel bans subsequent to that coupled with the plunge in crude oil price and lower CPO price, further dampened market sentiment," he said.

“In light of the current global crisis, there is an urgent need for relevant stakeholders (including authority) to diversify targeted tourist catchments and products in order to affirm the sustainable growth of the industry.

"In addition to that, government policies to encourage an inflow of Foreign Direct Investment (FDI) into the state through better financial incentives, well-established infrastructure, and desirable administrative processes and regulatory environment, will collectively bolster the footing and positioning of the industry to better withstand future adversity and challenges.”

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