Competition for office tenants set to intensify

KUALA LUMPUR: Competition among lessors of office space in Kuala Lumpur is expected to intensify this year, with the annual average rentals of office space in the business district projected at US$25.19 (RM76) per sq ft.

Global real estate firm Colliers International said completion of individual projects has been deferred from late 2010 to 2011.

"With a total of over 3.0 million sq ft new space coming on line by the end of 2011, competition for tenants is anticipated to intensify," Colliers said in its Asia Pacific Office Market Overview for the first quarter 2011.

According to the publication, which was made available to Business Times, prime office rental and capital values in Kuala Lumpur central area have improved slightly in the first quarter this year.

Colliers predicts the overall market to remain stable over the near term, on the back of economic growth of between 5 and 6 per cent this year.

The real estate firm anticipated that the new supply of office space in Kuala Lumpur business district to reach 3.2 million sq ft by year-end, bringing the total stock in the area to 31.1 million sq ft.

The take-up rate is expected to be 1.2 million sq ft, while the average vacancy for the year is estimated at 13.6 per cent.

For 2012, Colliers expects the average rentals to stay at US$25.19 per sq ft, while the new supply of office space in Kuala Lumpur to halve to 1.4 million sq ft, with the take-up rate to drop by a third to 800,000 sq ft.

Total stock is expected to increase slightly to 32.6 million sq ft, while average vacancy is also expected to trend upwards to 15 per cent.

Regionally, Colliers saw investment demand for office real estate remain strong in the first quarter this year, despite the recent interest rate rises.

"Firstly, the potential capital appreciation remained promising, given the continued rental catch-up in the market. Secondly, investors were encouraged by the sustained low-cost borrowing in the first quarter 2011," it said.

Buoyed by strong investment demand, it said individual centres such as Hong Kong and Taipei had seen office values reach new highs in the quarter under review. End-users remained keen on acquiring their office buildings for owner-occupation, it added.

On leasing, the real estate firm said although the individual centres are going to see an increase of three to four times of new supply this year, office rentals remained firm. This is due to positive business confidence and encouraging pre-commitment rate for a number of new developments.

The potential impact from the growing inflation is going to be the key uncertainty anticipated by most players in the office market.

Colliers, from its research, expects further rental and capital growth this year.

However, individual centres with major developments due for completion this year would provide a window of opportunity for tenants going for corporate relocation and upgrading over the near to medium term, it said.

"In particular, seismic concerns in Japan are expected to prompt more tenants to go for newer developments," it added.

By Business Times

Property at ‘upper band’

KUALA LUMPUR: Property companies on Bursa Malaysia, which have lagged behind the performance of the broader market in the past month, are trading at valuations that put such counters at the upper band against its regional peers.

Some analysts admit the valuations of the larger property companies are frothy but say there are reasons why such stocks are seeing such valuation differences from property companies in Singapore, Hong Kong or Indonesia.

“They have a premium because of execution, a track record and branding,” said HwangDBS Vickers Research analyst Yee Mei Hui, when comparing SP Setia Bhd, the country's top property company, with companies from other countries.

The regional comparison, which was made by CIMB after SP Setia released its second quarter results, showed the biggest property companies on Bursa Malaysia are generally trading at a slim discount to their share price as compared with the regional peers on a revalued net asset value (RNAV) basis.

The RNAV is what analysts think the market value of land and assets on a company's books amounted to compared with the book value of such land.

The small discount is more pronounced for the country's largest property counter by market-capitalisation terms - UEM Land Holdings Bhd, which has a market capitalisation of US$3.8bil - as the counter is trading at about a 9% discount to the stock's RNAV. SP Setia was trading at about 2% as of last week.

In comparison, the larger property companies, such as CapitaLand in Singapore and China Overseas Land & Investments Ltd, are trading at a much steeper discount to their RNAV.

One analyst thinks the difference in pricing compared with Singapore and Hong Kong is down to the mechanics of the markets there.

“Property prices there are volatile and investors who buy such stocks can overshoot in either way,” said ECM Libra Investment Bank Bhd research head Bernard Ching.

He said the land value in Malaysia was not as volatile and tended to rise on a gradual basis.

Concerns over a property bubble in Hong Kong and Singapore has also led to investors taking a much more cautious view of the value of property stocks in those countries in relation to their RNAV.

Some analysts feel the reason why Malaysian property counters have a higher valuation than regional companies was also down to a few factors.

Concentration of Malaysia-based funds seeking investments in Malaysia has seen a lot of money chasing a few quality companies and the bigger the stock, the better their following is.

“Property development is a medium term business and it's not solely about land value,” explained an analyst. He said investors generally want to look at stocks that generate a return on the value of the land the companies own and explained that companies that generally sit on large land reserves with little activity often see bigger discounts to their RNAV.

That argument has been used to explain Mah Sing Group Bhd's share price that is trading close to the company's estimated RNAV.

“Mah Sing works on a fast turnaround model and does not have a lot of landbank,” said an analyst.

Although property stock valuations were high, analysts said the divergence of the property index and that of the FTSE Bursa Malaysia KLCI (FBM KLCI) was down to investors chasing after the more liquid blue chip counters.

“The property index has a big number of mid and small cap stocks,” said an analyst.

“When the market turns south, buying will concentrate on the large, blue chip stocks.”

Property companies on Bursa Malaysia still, on average, attract “buy” calls with analysts saying the prospects of choice developers are still bright.

By The Star

SP Setia plans to increase Australia landbank

MELBOURNE: Malaysian property developer SP Setia Bhd plans to increase its landbank in Australia, predominantly in popular cities such as Melbourne, Sydney and even Gold Coast, as it seeks to capture the growing opportunities from the population boom of these cities.

Having made its first Australian investment last year, the developer is in the midst of scouting for more investment opportunities in Melbourne.

“For the first few years, we are looking for investment opportunities and to take on projects that will provide quick turnaround and are easy sell. Subsequently, we will look at greenfield projects and (at building) townships,” Setia (Melbourne) Development Co Pty Ltd chief executive officer Choong Kai Wai told Malaysian reporters here last Friday.

SP Setia is known for its township developments in Malaysia, which include Setia Alam in Shah Alam, Setia Indah in Johor and Setia Vista in Penang.

The developer, through its unit Setia (Melbourne) Development, will undertake a mixed-use development on the 4,340 sq metre site purchased last year for A$30mil in the central business district of Melbourne.

The property, dubbed Fulton LN, will comprise two towers of housing apartments as well as offering commercial and retail outlets closer to the ground level. It has dual street frontage, with the first tower facing Franklin Street and a two minute walk to the Queen Victoria Market while the second tower faces A'Beckett Street and is a five minute walk from RMIT University.

The first tower, which will be open for an exclusive preview on June 24, stands at 107 metres and will have 28 storeys offering some 300 apartments. Meanwhile, the taller tower at 44 storeys will be some 150 metres in length offering 400 apartments and should be open for sales in the next six to 12 months.

Most of the apartments will be one or two bedroom units although there will be units offering three bedrooms as well. Apartments start from A$370,000 for one bedroom at 45 sq metre, A$515,000 for a two bedroom starting at 60 sq metres and A$1.05mil for three bedroom dwellings starting at 114 sq metres.

Construction of this project, which has a gross development value of A$470mil, will commence next year and the development is expected to be ready by 2014.

The architectural design of the mixed development is by Karl Fender of Fender Katsalidis Architects, which happens to be the firm behind the proposed 100-storey tower Warisan Merdeka in Kuala Lumpur.

“The size of Fulton LN's ground plan gives us the opportunity to ignite activity movement around the laneway with retail, restaurants and cafes,” Fender said. Fulton LN is within walking distance of several universities and colleges such as Melbourne University and RMIT University. It is also close to Melbourne's central shopping centre.

and easily accessible by public transportation services.

SP Setia is looking to appeal to and monetise its Malaysian customer base, with many local parents having sent their kids to Australia, particularly Melbourne, to further their tertiary studies.

By The Star

CapitaMalls to buy Pahang mall for RM310m

AmTrustee Bhd, the trustee of CapitaMalls Malaysia Trust (CMMT) has entered into a conditional sale and purchase agreement with Astral Realty Sdn Bhd to acquire East Coast Mall in Pahang for RM310 million.

In a statement today, CMMT said the mall a nearly-full occupancy rate of 97.0 per cent, with a forecast property yield of about 7.1 per cent for 2011.

Based on CMMT's closing price of RM1.17 on June 13, CMMT's implied property yield for 2011 is about 6.4 per cent, it said, adding that it would be yield-accretive to CMMT unitholders.

The East Coast Mall is a four-storey shopping mall with one basement car park level and 1,170 car park lots, with a net lettable area of more than 440,000 square feet.

By Bernama