Cautiously optimistic outlook for Penang property market

THERE is cautious optimism over the outlook for the Penang property market, in spite of the inevitable headwinds and challenges that lie ahead.

Knight Frank Penang executive director Mark Saw says the overall outlook for the Penang market remains relatively positive despite the anticipated global recession, coupled with higher interest rates and inflation.

“The continuous hike of interest rates translates into higher monthly loan repayments, particularly housing loans.

“This reduces the probability of getting loan approval for individuals who apply for a property mortgage, resulting in relatively less property transactions,” he tells StarBizWeek.

Saw points out that any increase in rates will also cause additional financial burdens to existing subscribers of the loan facility, particularly conventional ones.

“On the other hand, higher inflation tends to lead to higher property prices, which indirectly reduces those who can afford homes,” Saw says.

He adds that rising interest rates and inflation are expected to cause imbalance in the property market in the medium to long term.

“However, the short-term impact on the property market should be minimal.”

With the recent general election now concluded and with a new government in place, Saw says there is hope that the unity government, led by Pakatan Harapan, will be able to steer the country in the right direction for the next five years.

“Optimism and hope are two ingredients in which they can build upon,” he says.

Fewer launches

CBRE|WTW, in its property market performance for the first half of 2022, says it is cautiously optimistic about the overall Penang market.

“Fewer new launches are expected due to the rise in raw material prices and shortage of foreign workers.

“Correction in the high-rise residential market will continue in the near future with fewer new launches and a reduction in overhang, as more unsold units are progressively absorbed by the market with the aid of developers’ marketing strategy.”

Saw says the Penang residential sector performed better during the third quarter of 2022, compared with the previous quarter in terms of both volume and value of transactions.

“A total of 4,879 residential transactions valued at RM2.21bil were transacted during the third quarter of 2022, which was an increase of 12.9% in volume and 15.7% in value of transactions, compared to the second quarter of 2022 (4,323 transactions valued at RM1.91bil).

“The reopening of borders did not have any major impact on the residential market in the state,” he says.

Saw says the residential sector in Penang is expected to perform slightly better in the final quarter of this year, compared to the third quarter of 2022.

“Based on the last five years’ transaction data from the National Property Information Centre, in general, the final quarter tends to have better figures in both volume and value compared to the third quarter.”

Knight Frank Research, in its Malaysia Real Estate Highlights report for the first half of 2022, says the return of property buyer confidence is bolstered by the success of the national Covid-19 immunisation programme, which led the country’s transition to the endemic phase.

“Coupled with the reopening of borders to international visitors, this is deemed positive to the recovery of the state’s residential property market.”

Office sector

Due to the limited supply of better grade office space in Penang, Knight Frank says the state’s office segment continues to hold steady with stable rents and occupancy rates.

“Generally, there is growing demand for new office buildings with better specifications, as well as those with Multimedia Super Corridor (MSC) status due to the growing global business services (GBS) sector.”

CBRE|WTW, meanwhile, says the Penang office market is expected to prevail in the short term, as the office workplace remains significant for face-to-face interactions and team collaborations.

“Companies with long-term views of the market would uphold that high-quality office space is vital to portray a corporate image as well as to value their employees in order to attract, retain and nurture top talent.”

It adds that occupancy rates are expected to remain stable till year-end, amid limited new supply.

“Improvement in rental is anticipated from the pent-up demand for MSC offices and rising rentals to cover the escalating maintenance costs.”

CBRE|WTW says continuous initiatives were observed by the Penang state government in promoting GBS, which may attract multinationals in setting up their shared services operations in Penang.

“This will keep MSC-status offices in demand in supplying their global services hubs.

“Other than that, co-working spaces seem to still be encouraged in their prospects, continuing as a relevant alternative to traditional office space.

“Companies looking to expand or just set up may look into the flexibility of co-working spaces in terms of their leasing terms.”

Retail sector

Boosted by the freedom euphoria as Malaysia transitioned into endemicity, as well as the relaxation of standard operating procedures, CBRE|WTW says the normalisation of shopping activities has been rapid as Malaysians have been travelling and spending more domestically.

“The short-term outlook for the retail sector remains in recovery with retail complexes becoming popular as hang-out venues. Retail complexes will continue attracting footfall through a safe and convenient shopping environment.”

However, it says the challenges to recovery are expected to abound, including inflation, which would result in the reduction of purchasing power, escalation of living costs and increase in business operation costs.

“Health concerns of emerging sub-variants may slightly affect traffic footfalls.

“Furthermore, as new retail complexes of significant size enter the market, keen competition among retailers and landlords is expected, leading to a widening gap in performance between newer and older retail complexes.”

Knight Frank also concurs that the retail segment in the state is slowly back on track with increasing footfall at shopping malls and the debut of new entrants focusing on food and beverage, groceries, home decoration and furnishing and accessories categories.

“More operators and retailers are embracing eCommerce and cashless platforms,” it says.

Industrial sector

Knight Frank believes that the industrial segment is the “silver lining” in the state’s property market.

“Batu Kawan Industrial Park will continue to be the main hotspot as over the next three years, Penang Development Corp (PDC) plans to develop between 100 acres and 150 acres of industrial land annually.”

Moreover, in order to attract more interests from foreign investors, Knight Frank says Penang is also planning a new industrial park in Kepala Batas.

“It will create a smart and high-tech industrial park with the best infrastructure for 5G Internet access.

“There is also encouraging demand for logistics facilities to serve the expanding eCommerce and logistics sector.”

Meanwhile, CBRE|WTW says the encouraging investment activities and external trade augur well for the industrial property sector.

“Still, the proposed new industrial parks in Bertam and Batu Kawan Industrial Park Phase 2 would take some time to be ready.

“Industrialists who require sizeable greenfield development rather urgently may explore other industrial parks in neighbouring states, such as the Kulim Hi-tech Park, as an alternative.”