Property Market Trend Analysis Commercial

Savills

May 2019 GREATER KL Retail Market Overview Retail Supply in Greater KL

. Well-supplied market, Cumulative Retail Supply in Greater KL with 64 mil sq ft of KL City KL Suburbs Outer KL Greater KL shopping mall & Future Supply: hypermarket in the +21 mil sf region. 90.00 85 . Basically, both the office 84 78 and retail markets are 80.00 bracing for an additional 69 70.00 20 million sft of supply 64 62 by 2022 (each), but for 61 60.00 57 retail, the current supply 54 base is half that of office; 48 49 50.00 46 hence, the % growth will 42 be twice as high. 39 40 40.00 38 . Of the total retail supply

in Greater KL: - Retail Sapce (mil sf) 30.00  : 57% 20.00  KL Suburb: 25%  KL City: 18% 10.00

0.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019e 2020e 2021e 2022e

Source: Savills Research 3 Future Retail Supply in Greater KL

Future Supply in the Greater KL . Strong competition in the coming years with at Selangor KL Suburbs KL City least 20 mil sq ft retail . Empire City Mall space in the pipeline. 10.00 . Pavilion . KSL City Mall 9.00 . The Exchange Mall 8.00 . Mitsui Shopping Park Lalaport . Pavilion 7.00 . IOI City Mall 2

6.00 6.20

5.00 Tropicana Gardens Mall 1.10

4.00 . Mall @ 1.94 Redevelopment of

Retail Space(million ft) sq 3.00 3.08

2.00 1.80 2.63 1.00 0.32 1.02 1.25 0.50 0.00 2019e 2020e 2021e 2022e

Source: Savills Research 4 Average Retail Occupancy Rate

Retail Occupancy Rate of Greater KL . Retail occupancy rate 5.0 100.0% remain healthy, recorded 87% as of 2018. 94.4% 4.5 92.5% 95.0% 92.1% 91.4% 92.1% . However, new malls 90.0% 90.7% 90.0% 89.5% 89.0% struggle to reach high 4.0 87.6% 87.8% 90.0% occupancy on opening. This is mainly due to the 3.5 85.0%

availability of plenty (%) Rate Occupancy options for retailers to 3.0 80.0% choose, and they are taking this opportunity to 2.5 75.0% assess the suitability to open a new stores. 2.0 70.0% New New Completions (mil sf) 1.5 65.0%

1.0 60.0%

0.5 55.0%

4.0 1.7 0.8 1.8 4.0 2.3 0.8 4.6 2.1 3.6 2.2 2.1 0.0 50.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 NewNew Supply completions OccupancyAOR rate

Source: Savills Research 5 Prime Retail Rent Index

Prime Rental Index (Q4/2005 = 100) . Stable rent level across all prime Prime Rental Index (Q4/2005 = 100) Y-o-Y Change retail segments is 240.0 16% anticipated amidst the challenging retail 227 227 14% environment. 220.0 . The top centres have 12% long enjoyed rental 200.0 growth that was the 10% envy of the rest of the 8% market, underpinned 180.0 by stable economic 6% growth and favorable 160.0 demographics. This is 4% no longer the case.

. The significant supply 140.0 2% growth over the past decade has led to 0% increasing competition, 120.0 causing malls to -2% compete for the same, limited catchments. 100.0 -4% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Savills Research 6 Major mall transactions in Greater KL

Year NLA Transaction Price Capital Value Yield Property Purchaser Transacted (sq ft) (RM mil) (RM psf) (%) 2008 Part of Sg Wang Plaza 510,418 595 1,166 CapitaLand Ltd - Citta Mall 424,000 280 670 SEB Asset Management - 2009 Starhill Centre 297,354 629 2,115 Starhill Global REIT - 256,811 401 1,561 Starhill Global REIT - 1 Mont’Kiara 410,000 333.0 812 ARA Asia Dragon Limited - 450,470 724.0 1,607 CapitaLand Malaysia Mall Trust (CMMT) 7.3% 2010 The Mines 719,563 530.0 737 CMMT 6.4% Shopping Mall 1,685,568 2,300.0 1,365 Sunway REIT 6.4% Pavilion KL Mall 1,335,119 3,190.3 2,390 Pavilion REIT 6.7% 2011 CITTA Mall 424,467 245.0 577 ARA Asia Dragon Limited - 1,718,951 3,440.0 2,001 IGB REIT 5.3% 2012 The Gardens Mall 817,053 1,160.0 1,420 IGB REIT 5.9% 2014 KL Festival City 450,000 349.0 776 Festival Mall Sdn Bhd & AsiaMalls Sdn Bhd - Tropicana City Mall and Office Tower 549,494 540.0 983 CMMT 4.0% 2015 Da Men Mall 420,290 488.0 1,161 Pavilion REIT 6.0% The Intermark Mall 225,014 160.0 711 Pavilion REIT 6.1% Empire Shopping Gallery 350,000 570.0 1,629 Pelaburan Hartanah Bhd (PHB) - 2017 AEON Mahkota Cheras 211,405 87.8 415 Foremost Wealth Management Sdn Bhd - Elite Pavilion Mall 229,609 580.0 2,397 Pavilion REIT - 2018 SS2 Mall 460,000 180.0 391 DK-MY Properties Sdn Bhd -

Source: Bursa Malaysia & News Publications 7 Market Outlook for Retail

Supply . Diluted market shares, with 20 mil sq ft of retail space scheduled for completion by 2022. . Occupancy rate of major malls remains healthy. Having said that, new malls are struggling to reach high occupancy on opening. . Retailers are consolidating and reviewing current stores’ performance and be more prudent in terms of store expansion. Anecdotal evidence shows that retailers are keen to expand and are looking out for other store format options.

Demand . Retail supply growth far outpaced population growth. . More international brands open stores in Malaysia especially F&B, fast fashion, athleisure and beauty segments.

Investment . Prime retail rental index holding up, with Suria KLCC & Pavilion KL leading the market. The completion of TRX The Lifestyle Mall and Mitsui Shopping Park Lalaport @ BBCC in the end 2021 will have an impact to the retail market. . Market sentiment remains soft and likely to prolong.

8 New Retail Entrants

9 Origins of New-to-market International Retailers in 2017/18

EMEA APAC  Fashion  Fashion AMERICA  Fashion

 F&B  Beauty & Personal Care

 F&B

 F&B  F&B  Beauty & Personal Care

 Others

Source: Savills Research 10 GREATER KL Office Market Overview Total Office Stock in Greater KL is 125 mn sft, making it ASEAN’s largest

. GKL is largest office 180.0 Cumulative supply of office space in Greater KL 15.0% market in ASEAN. Future Supply:

12.6% +18 mil sf 150.0 143 . 3.8 million sq. ft of new 139 134 12.0% office space (13 office 131 125 buildings) completed in 120 115 2018, of which 120.0 111 ) 105 102 9.0% . 48% in Selangor 98 92 . 38% in KL Suburb, and 87 90.0 82 6.9% . 14% in KL City

73 Y Change (%) 70 5.6% 5.8% - 67 5.6% o

65 6.0% - Y Supply (mil. Sq. ft 60.0 4.5% 4.4% 4.5% 4.6% 4.0% 3.6% 3.7% 3.7% 3.0% 2.6% 2.6% 3.0% 30.0 FUN FACTS  80 million sq ft 0.0%  Hong Kong 127 million sq ft 0.0 0.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019f 2020f 2021f 2022f  Bangkok 97 million sq ft

 Manila 73 million sq ft KL City KL suburban Outer KL Greater KL Supply Growth Rate  Jakarta 67 million sq ft Note: Office space in Cyberjaya is included in Savills Basket since 3Q 2018. Recent Office Completions in Greater KL

. Majority of the new offices are located in the suburbs, with only two office buildings in the KL City namely Equatorial Plaza (460k sq ft) and Menara Khuan Choo (85k sq ft).

Selected New Grade A Offices

Mutiara Petaling Jaya KL City KL Eco City Damansara Mid Valley

Menara Celcom Menara Perdana Equatorial Plaza Mercu 2 (CANCO) MRCB Nucleus Tower Menara Etiqa Southpoint NLA: 460k sq ft NLA: 540k sq ft NLA: 450k sq ft NLA: 270k sq ft NLA: 238k sq ft NLA: 380k sq ft NLA: 540k sq ft

Source: Savills Research 17 Future Office Supply in Greater KL

Total Office Expected Major Office Buildings Zone Space completion (>300k sq ft) 2019-2022 year

The Exchange 106 @ TRX 2019 Menara Prudential @ TRX 2019 YTL HQ 2019 TCM Tower 2020 Lot 91 KLCC (Sapura) 2020 Merdeka PNB118 2021 KL City 11 mil sq ft Affin Bank HQ @ TRX 2021 HSBC HQ @ TRX 2021 UOB Tower 2 2021 Office @ Oxley Tower 2021 The Stride Strata Office @ BBCC 2021 Pavilion Embassy Corporate Suites 2022 Lot 185, 167, 176 KLCC 2022 Pavilion Damansara Heights 2021/22 KL Suburbs 3 mil sq ft Lot 61 Bangsar by PHB 2022 HCK Tower @ Empire City 2019 The rest of 3 mil sq ft Selangor 1 Powerhouse Bandar Utama 2020 Uptown 8 2020 Kenwingston Business Centre 2020 Cyberjaya 0.3 mil sq ft Glomac Cyberjaya 2 2021 Source: Savills Research 18 Greater KL Office Vacancy Rate

. Greater KL office Office Vacancy Rate in Greater KL vacancy rate decreased 40.0% KL City KL suburban Greater KL Selangor by 0.8% Y-o-Y mainly 23% due to the lower average vacancy rate recorded in KL City KL suburban and Selangor (excluding 30.0% Cyberjaya). 23% . Flight-to-quality is KL Suburban amongst the trends pushing demand for new 20.0% and well-equipped office buildings in the market.

Vacancy Vacancy Rates (%) 23% . Corporations are Selangor 10.0% consolidating by shifting (including Cyberjaya) branch offices back to the HQs. On a positive note, flexible workspace operators are expanding. 0.0% 24%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Greater KL 2018p Note: p=preliminary

Source: Savills Research 19 Office rents in GKL do not show much growth, but can serve as a bulwark against inflation.

. There is stagnancy / Gross asking rents in Greater KL decline in rental values Prime Offices in KL City CBD KL Suburban Selangor Greater KL owing to the oversupply situation and the 9.00 availability of various options in the market for 8.37 tenants. 8.00 . Longer-term, the rule of thumb is that office rents 7.00 tend to rise about 10% every three years, which just about keeps pace 6.00 with inflation. 5.73 5.39

RM per sq ft/ month 5.00 4.76

4.58 4.00

3.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Savills Research 20 Notable En-bloc Office Transactions, 2015-2018

KL SUBURB KL CITY RM670 – 1,150 psf RM824 – 1,400 psf Year Name NLA Price Yield Year Name NLA Price Yield Balai Berita 2018 327,310 sf RM363 psf - Equatorial Bangsar 2018 460,000 sf N/A - Plaza Wisma UOA 2018 157,000 sf RM764 psf - 2017 Vista Tower 551,875 sf RM824 psf 6.5% Pantai Wisma 2017 Wisma MK 181,992 sf RM670 psf - 2017 Selangor 362,782 sf RM1,323 psf 5.3% Menara Hong Dredging 2016 506,069 sf RM1,150 psf - Leong Menara AIA 2016 601,574 sf RM850 psf 6.4% 2016 Nu Tower 1 259,632 sf RM1,090 psf - Cap Square 2015 Menara Shell 556,468 sf RM1,118 psf 6.1% 2015 Integra Tower 760,715 sf RM1,400 psf 5.5%

PETALING JAYA CYBERJAYA RM602 – 621 psf RM426 – 482 psf Year Name NLA Price Yield Year Name NLA Price Yield Block H @ 2017 184,591 sf RM650 psf - 3505, Jalan Empire City 2018 52,473 sf RM533 psf - Teknokrat 5 The Ascent @ 2017 516,633 sf RM621 psf 6.0% Paradigm 2016 Axis Eureka 116,389 sf RM482 psf - Block N @ Enterprise 2015 238,932 sf RM650 psf - 2016 93,804 sf RM426 psf 7.2% Empire City Building 2 Tropicana City 2015 101,246 sf RM602 psf - Office

Source: Savills Research 21 Market Outlook for the Office Sector

Supply . Large impending supply, with 18 million sq ft scheduled for completion by 2022. . New supply completions (and launches) are decelerating slightly, but vacancy rates continue to rise.

Demand . Market absorption in Greater KL has lagged over the past 2-3 years, with the absorption in 2017 being one half of the space in 2013/14. Absorption in KL City alone was a net negative number in 2017. . Average absorption recorded 2.5 million sq ft per annum from 2013-2018. . Heavily dependent on the Oil & Gas industry and financial services sector, which account for 60% of the demand for Grade A space in the city centre. . “A flight to quality” – several companies relocating from old office buildings to new office buildings, as tenants become savvier about the space they occupy, and the financial and productivity benefits of better-quality space.

Investment . Average rents see little or no growth. Nevertheless, most recent office completions are of higher specification than older buildings, and therefore lease for higher rents. . Yields are under pressure resulting from higher construction costs and weaker rents.

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