Johor’s large impending supply to impact rental returns, says Knight Frank

PETALING JAYA (Jan 24): The slowdown in market activity in Johor looked set to continue into 2017, after the market recorded a total of 20,680 transactions and value of RM10.87 billion for the first half of 2016 (1H2016), representing declines of 15% and 1.4% respectively, from 1H2015, according to the “Knight Frank Malaysia Real Estate Highlights 2H2016” report.

“With many developments, particularly high-rise residential projects, set to be completed next year, the large impending supply will present tenants with a wide range of choices but this will depress potential rental returns for landlords,” said the real estate consultancy said in the report.

On the other hand, new offerings of landed residential property have performed well throughout 2016 and with more phases to be released in 2017, this trend looked set to carry on next year. Properties priced between RM350,000 and RM600,000 have proven to be popular in Zone D of Iskandar Malaysia.

In the retail sector, new space will be added in 2017 with an incoming supply of about 3.4 million sq ft, which will generate pressure on rental rates.

In addition, with the consumer market being impacted by global and domestic economic trends, the retail sector will need to be resilient in 2017.

The total retail space in Johor Bahru currently stands at about 11.85 million sq ft, with overall occupancy rate having improved from 74.8% in 1H2016 to 75.9% in 2H2016 while take-up/absorption grew by 258,064 sq ft.

Meanwhile, the industrial property sector in Johor has slowed down significantly over 1H2015 to 1H2016 despite the manufacturing sector in the state attracting more than RM18 billion in total proposed capital investment for the January to September 2016 period, the highest in the country.

During 1H2016, there were a total of 358 transactions in the industrial sector with a corresponding value of RM931 million, reflecting a sharp decline of 47.6% in volume and 28.1% in value respectively, compared with 1H2015.

Looking ahead, Knight Frank expected the development of the High Speed Rail connecting Kuala Lumpur to Singapore to prompt investors to jockey for positions close to the proposed station locations.

Additionally, the extension of the Southern Link connecting the Coastal Highway to the Second Link will be a strong catalyst as traffic will be directed through the Medini/Iskandar Puteri areas. This extension is set to open by 1Q2017.