Research

Real Estate Highlights - - Bahru • 1st Half 2008

Contents Kuala Lumpur Hotel • Condominium Market 2 • Office Market 5 • Retail Market 8 • Hotel Market 10 Penang Property Market 12 Retail Property Market 14

Residential Office

Executive Summary Kuala Lumpur • The high end condominium market stabilised in the first half of 2008 in terms of take up, capital values and rentals. • Rentals and occupancies of prime offices continued to rise due to the current tight supply of good quality office buildings. • Several retail centres located at fringes of KL City are undergoing refurbishment works to remain competitive. • The performance of the hotel industry had been resilient attributed to high tourist arrivals and receipts, which led to the increase in average room rates and occupancies.

Penang • Most of the high end condominium projects which are nearing completion have been sold, with prices being revised upwards. • The retail industry performed well with higher tourist arrivals in Penang. • The asking rentals of newly completed offices with better IT facilities are ranging from RM2.50 to RM3.50 per sq ft per month.

Johor • The high end residential market is gaining momentum with the positive development of Iskandar . • Prime retail centres continued to enjoy growth in rentals and occupancies. • Office sector remains healthy at an average occupancy of 70%. 2 Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru • 1st Half 2008 Knight Frank

Figure 1 Projection of Cumulative Supply Kuala Lumpur High End Condominium Market for High End Condominium (2008 - 2010) Market Indications 30,000

The high end condominium market generally stabilised during the first six months of the year with one 25,000 notable new project, The Regent Residences (across Twin Towers), recording prices in excess of RM2,500 per sq ft. In addition, the market also saw the entry of Sunway Vivaldi in Mont’ Kiara, setting a new 20,000 benchmark in the Mont’ Kiara locality (with average pricing of RM850 to RM900 per sq ft).

15,000 Supply & Demand

Number of Units 10,000 There were several new completions in the KL City during the first half of the year, adding some 680 new units to the existing high end condominium supply. The newly completed projects include 2 Hampshire,

5,000 The Meritz, Cendana on Sultan Ismail, Menara Bintang Goldhill, Park Seven and Taragon Puteri YKS. In the Ampang Hilir/U-Thant locality, two projects were completed, namely Mutiara Upper East and The

0 Residences Katana. 20082009 2010 / Ampang Hilir/U-Thant There was no new completion in both the Damansara Heights and Bangsar localities whilst several Mont' Kiara KL City completions were noted in Mont’ Kiara which include Kiaraville, Hijauan Kiara, Mont’ Kiara Banyan, Source: KF Research I-Zen@Kiara I and Kiaramas Ayuria. These completions added approximately 1,900 high end condominium units and brought the total cumulative supply figure to 13,170 for the supply located at the fringes of KL City.

Demand for selected high end condominiums remained firm in the first half of 2008. Gaya Bangsar, developed by UDA Holdings Berhad, was launched in early 2008 and was fully sold within a month from launch whilst Panorama, a project located along Persiaran Hampshire in the city, achieved 85% sales rate within 2 months of launch.

Table 1: High End Condominium Projects Launched in 1H2008 Total Project Location Area Unit Developer Regalia @ Jalan Jalan Sultan Ismail KL City 1,033 Mayland View Sdn Bhd Sultan Ismail The Oval Jalan Binjai KL City 140 Oval Residences Sdn Bhd Panorama Persiaran Hampshire KL City 223 Promatik Emas Sdn Bhd The Regent KL City 115 KL Landmarks Sdn Bhd Residences* Swiss Garden Jalan Galloway, KL City 436 Superville Sdn Bhd Artist Impression of Panorama Residences Off Jalan Pudu 51 Gurney* Jalan Perumahan KL City 68 Zahari Holdings Sdn Bhd Gurney/Jalan Gurney 9 Madge Jalan Madge U-Thant 23 Rodem Sdn Bhd Damai 206 Jalan Damai, Off U-Thant 18 Metroworld Residences Jalan Ampang Sdn Bhd Suasana Bangsar Jalan Kaloi Bangsar 191 United Malayan Land Bhd Gaya Bangsar Bangsar 285 UDA Holdings Bhd Kiara 9 Jalan Kiara 3 Mont’ Kiara 192 Kina-Bijak Sdn Bhd Sunway Vivaldi Jalan 19/70A Mont’ Kiara 228 Sunway City Bhd Mont’ Kiara * to be officially launched in second half of the year

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The new launches were well received by the market and gained strong foreign interest attributed to their competitive pricing in the Asian region and their unique concepts. For instance, 51 Gurney, located at Jalan Perumahan Gurney, has attracted considerable foreign interest with its unique selling point of car lift system that allows residents to park their cars within their premises. This had led to its good sales performance of more than 35% within the first two weeks of launch. The Regent Residences, with benchmark pricing at an average of RM2,600 per sq ft, has been receiving good response from foreign interests, since its pre-sales in April 2008.

More completions are expected for the second half of the year with a total estimated 1,520 units in KL City and 182 units in its fringe areas. Some of the notable completions by end of this year will include The Binjai, Artist Impression of 51 Gurney K Residence and The Avare in KL City whilst Kiara 1888 in Mont’ Kiara is scheduled for completion in the second half of 2008.

The possible new launches in the second half of 2008 are listed in Table 2 below. It is estimated that some 3,000 units may be launched in the city area whilst some 80 units will be launched at the Ampang Hilir/U-Thant locality. Figure 2 Average Sales Status for High End Condominium Table 2: Possible High End Condominium Projects to be Launched in 2H2008 90 Total 80 Project Location Area Unit Developer

70 Millennium Residence Jalan KL City 132 CDL Hotels (Malaysia) Sdn Bhd 60 The Binjai Jalan Binjai KL City 171 Layar Intan Sdn Bhd

50 Platinum Residences Jalan Binjai KL City 123 TTDI Development Sdn Bhd 40 Acadia Residensi Jalan Tun Razak KL City 429 IMC Parkville (KL)

Sales Status (%) Sdn Bhd 30 Setia Sky Residences Jalan Tun Razak/ KL City 844 SP Setia Bhd 20 Jalan Raja Muda Abdul Aziz Shah 10 St. Mary Residency Jalan Tengah KL City 657 Mergexcel Property 0 Development Sdn Bhd KL City Mont’ Bangsar/ Ampang Kiara Damansara Hilir/ Verticas Residency Jalan Ceylon KL City 423 Wing Tai Asia Heights U-Thant Unnamed Persiaran Raja KL City 310 UM Land Source: KF Research Chulan Amarin Wickham Jalan Wickham Ampang Hilir 21 Amarin Wickham Sdn Bhd Unnamed Jalan Penggawa Ampang Hilir 56 SsangYong Residences (M) Sdn Bhd

Artist Impression of The Regent Residences 4 Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru • 1st Half 2008 Knight Frank

Figure 3 Prices & Rentals Average Selling Price for High End Condominium

1,200 The prices of existing high end condominiums in KL City and its fringe areas were stable in the first half of 2008. Popular residential addresses such as Mont’ Kiara saw asking prices increased to RM650 and RM700 per sq ft compared with the RM400 to RM600 per sq ft mark recorded one year ago. The higher prices in 1,000 Mont’ Kiara were seen in projects such as Kiaraville, Hijauan Kiara and Mont’ Kiara Banyan. In Bangsar, asking prices have also increased to a high of RM950 per sq ft following the completions of Palmyra and 800 The Loft Bangsar. Based on our market observation, the asking prices of newly completed high end condominiums are significantly higher than the older high end condominiums. 600

There was an en-bloc transaction during the first half of 2008 i.e. Sunway City Bhd sold Block B (80 units) of 400 its Sunway Palazzio units to Radiant Splendour Sdn Bhd, a Middle Eastern fund, for RM220 million, analysed

Average Selling Price (RM psf) Average to RM750 per sq ft. 200

Rentals remained stable in the first half of the year, with slight increments in certain localities due to the 0 completions of better quality condominiums. In KL City, the asking rentals of the soon to be completed KL City Ampang Bangsar/ Mont’ Hilir/ Damansara Kiara U-Thant Heights projects i.e. K Residence and The Avare are expected to range from RM6.00 to RM8.00 per sq ft per month.

Source: KF Research Table 3: Asking Prices and Rentals of Existing High End Condominiums Locality Asking Gross Rent Asking Selling Price (RM psf/month) (RM psf) “Rentals remained stable KL City 4.50 - 7.50 700 - 1,400 in the first half of the Ampang Hilir/U-Thant 3.50 - 5.50 500 - 1,000 Damansara Heights 3.90 - 4.80 500 - 700 year, with slight Kenny Hills 3.50 - 4.50 500 - 800 increments in certain Bangsar 3.00 - 5.00 450 - 900 localities due to the Mont’ Kiara 2.80 - 4.50 400 - 700 completions of better quality condominiums” Outlook Market sentiments for high end condominium in the second half of the year are expected to be more cautious and some of the projects scheduled for launch may be deferred. The completion of new projects is expected to lead to a competitive rental market, both in the city and fringe areas. The competitive high end condominium market is also driving developers to greater level of product innovation and marketing strategies.

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Figure 4 Occupancy and Rental Trends Kuala Lumpur Office Market (2000 - 1H2008) 88 6.00 Market Indications

86 5.00 The office market started on a strong note with prime office rentals in KL City charging ahead by 84 approximately between 15% and 20% in the first half of 2008, attributed to tight supply of prime office 82 4.00 space, particularly within the KLCC development and its immediate fringes. The tight supply also drove 80 occupancies up in prime offices in KL City, KL Sentral and Mid Valley. Amidst the rising inflationary pressures

78 3.00 and global economic uncertainties, the office market was resilient in the first half of the year. However, its strong performance may be dampened in the second half of the year due to continued uncertainties on the 76 Occupancy (%) 2.00 global and local economic fronts. 74 Gross Rental (RM psf)

72 Supply & Demand 1.00 70 In the first half of 2008, KL City recorded cumulative office space of 40.9 million sq ft with the completions 68 0.00 of Menara Commerce and Menara whilst fringes of KL City has added another prime building in Mid 2000 2001 2002 2003 2004 2005 2006 2007 Valley City i.e. South Tower at The Gardens and brought the total supply in fringes of KL City to 11.4 million 1H2008 Occupancy (%) Rentals sq ft. The new completions recorded commendable take-up which brought the current average occupancy Source: KF Research of new buildings at 60%.

New buildings coming on stream in KL City and its fringes are Sunway Tower KL 2 (273,200 sq ft), Pavilion “The office market KL-DBKL office (185,000 sq ft), North Tower at The Gardens in Mid Valley (430,000 sq ft) and UEM Tower started on a strong note in KL Sentral (500,000 sq ft). with prime office rentals Menara Denmark along Jalan Ampang is currently undergoing refurbishment works and will re-enter the in KL City charging market as Sunway Tower KL 2 whilst the adjoining tower, Sunway Tower KL 1 is expected to be completed ahead by approximately in 2011. Both the towers will offer a total net lettable area of 623,220 sq ft upon full completion in 2011. between 15% and 20% in the first half of 2008, Office buildings currently being refurbished are Menara Genesis at Jalan Sultan Ismail, MIDF Tower at Jalan attributed to tight supply Raja Chulan and Wisma Hamzah-Kwong Hing at Leboh Ampang. Central Plaza, located along Jalan Sultan of prime office space…” Ismail, completed its refurbishment works in February 2008.

Some office buildings which have added facilities to attract tenants are Wisma UOA Centre with a RHB Banking Hall (moved in on the ground floor in early 2008) and Menara MPL with a wellness spa which occupied a large space of 21,000 sq ft in early 2008.

During the last six months, the average occupancy of office buildings in Kuala Lumpur was recorded at 86% with prime offices recording average occupancy of 96% attributed to business expansions. It is becoming increasingly difficult to obtain readily available large prime office space in the KLCC development and its immediate fringes. The last six months also saw higher occupancies and rentals in the KL Sentral locality with more offices relocating there due to its cyber centre status and convenience of the transportation hub. Since the recent rise in fuel costs, there is a growing trend for companies to locate their offices close to LRT stations, in their effort to ease the burden of rising transportation costs on employees.

KL City: Menara Perak, Jalan Perak 6 Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru • 1st Half 2008 Knight Frank

Figure 5 Trends are also showing that more office developments are adopting green features such as energy saving, Capital Values and Gross Yield reduce wastage and water usage and use of non-toxic materials. Office projects under construction which Trend (2000 – 1H2008) are designed with green building features are G Tower along Jalan Tun Razak, Sime World HQ in KLGCC and PJ Trade Centre in Damansara Perdana. 900 14.00

800 12.00 Rentals & Capital Values

700 10.00 The first half of the year saw several transactions on ‘forward purchase’ basis which recorded capital values 600 surpassing RM1,000 per sq ft. 500 8.00 During the first half of 2008, Kuwait Finance House (KFH) entered into an agreement with YNH Property 400 6.00 Bhd for the purchase of half of Menara YNH with a total consideration of RM920 million (approximately Gross Yield (%) Gross Yield 300 Capital Value (RM psf) Capital Value RM1,230 per sq ft). 4.00 200

2.00 The same party, KFH, was involved in a another forward purchase agreement of a proposed prime office 100 development within the immediate fringe of the KLCC development known as Glomac Tower. The building 0 0.00 is located at the intersection of Jalan Pinang and Jalan P.Ramlee and analysed at RM1,120 per sq ft over the

2000 2001 2002 2003 2004 2005 2006 2007 net lettable area. 1H2008 Capital Value Gross Yield Source: KF Research Table 4: Office Sales in 1H2008 Building Name Location Approx. Lettable Consideration (RM)/ Area (sq ft) (RM psf) “The first half of the year Glomac Tower Jalan Pinang/Jalan 515,003 RM576,853,150 (1,120) saw several transactions P.Ramlee Tower 2, CapSquare Jalan Munshi Abdullah 600,000 439,300,000 (732) on ‘forward purchase’ Menara Felda Jalan Binjai 689,000 640,700,000 (930) basis which recorded (3 Towers) 177,500 (estimate) RM131,350,000 capital values surpassing PJ City 172,041 75,698,000 (440) RM1,000 per sq ft” KUB.com Building Jalan Yap Kwan Seng 198,000 86,500,000 (437) Menara HeiTech Village 166,696 65,000,000 (390)

Other transaction include the upcoming prime office known as Menara Felda, part of an ongoing mixed development along Jalan Binjai known as Platinum Park and was transacted early of the year at RM930 per sq ft.

Bangunan Angkasaraya, one of the oldest office developments strategically located at the Jalan Ampang/Jalan P.Ramlee/Jalan Yap Kwan Seng intersection, was sold to Sunrise Berhad at RM179 million. The 1.6-acre site will be redeveloped into an upscale commercial development.

KL City: Menara Commerce, Jalan Raja Laut

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“Tight supply of prime The achieved average rental for KL City is analysed at RM5.95 per sq ft per month whilst fringes of KL City is offices in KL City have now achieving average rental of RM4.45 per sq ft per month with recorded increases of 7% and 9.6% respectively compared to end of 2007. prompted some owners of prime buildings Table 5: Selected Grade A Office Asking Rentals having only small Asking Gross Rental pockets of space to (RM psf/month) increase their asking Menara Maxis 9.00 rentals between 15% and Menara Prudential 7.00 Menara IMC 7.00 20%, bringing the Menara Dion 9.00 average rental to RM7.50 Rohas Perkasa 6.50 per sq ft per month…….” Menara Citibank 8.50 Menara Standard Chartered 7.00 Menara Etiqa Twins 6.50 Menara HLA 7.00 Menara Millennium 5.50

Tight supply of prime offices in KL City have prompted some owners of prime buildings having only small pockets of space to increase their asking rentals between 15% and 20%, bringing the average rental to RM7.50 per sq ft per month compared to RM6.50 per sq ft per month at the end of 2007. This current scenario is especially true for prime office buildings located within the vicinity of KLCC development which includes Jalan Ampang, Jalan Pinang and Jalan Sultan Ismail. Menara Citibank, a prime office building located next to Nikko Hotel and within short walking distance to the LRT station, is now asking for RM8.50 per sq ft per month.

Fringes of KL City also saw rental increment in (about 20% increase compared to end of 2007) with the newly completed South Tower at The Gardens pegging asking rentals of RM5.50 per sq ft per month; steadily catching up and recording similar rental level as Damansara Heights. The first half of 2008 also saw a new rental benchmark being recorded in KL Sentral at RM8.00 per sq ft per month. Fringes of KL City: South Tower at The Gardens, Mid Valley City Outlook Kuala Lumpur office market is expected to stabilise amidst businesses adjusting to the challenging economic environment. New office completions located strategically close to LRT stations are expected to draw strong interest from potential tenants and investors. Office locations within KLCC and its immediate fringes as well as KL Sentral are anticipated to remain as firm favourites amongst office tenants and investors. 8 Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru • 1st Half 2008 Knight Frank

Figure 6 Retail Sales Growth Trend Retail Market (2000 - 2008) 12 Market Indications

10 The retail sector remained strong in the first half of 2008 particularly in the first quarter, reflected by positive 8 consumer sentiments. The Consumer Sentiments Index (CSI) monitored by the Malaysian Institute of

6 Economy Research (MIER) showed that has climbed from 110.7 points (4Q07) to 115.5 points (1Q 2008). The positive sentiment was also reflected in the Business Conditions Index (BCI) where the 4 index climbed 14 points from 105.5 (4Q07) to 119.9 (1Q08). Retail Sales Growth (%) 2 However, soaring inflation, especially for items such as food, petrol and energy, has dampened the retail 0 sentiment in the second quarter of 2008. Inflation rose to 26-year high of 7.7% in June and it is set to rise

2000 2001 2002 2003 2004 2005 2006 2007 further in the second half of the year. This has resulted in consumers tightening their spending on retail 2008 (e) Source: KF Research/MRA goods and services due to higher cost of living. The healthy tourist arrivals and receipts are expected to cushion the impact of lower local consumer spending and sustain the growth of the retail industry for the “The healthy tourist year. arrivals and receipts are Supply & Demand expected to cushion the impact of lower consumer spending and sustain the There was no new completion of shopping centres in the first half of 2008 and total existing supply stood growth of the retail at 17.8 million sq ft in Kuala Lumpur and 12.8 million sq ft in . During the review period, industry for the year” Southgate along Jalan was launched, offering a total of 63 strata units.

In terms of proposed supply, Vision City (an abandoned mixed development at Jalan Sultan Ismail) is expected to be revived. The retail centre was sold to Quill Retail Malls Sdn Bhd in July 2007 and construction works are expected to resume in 2009. , another abandoned project, may only be revived post 2010. Under the Draft KL City Plan 2020, the former Pudu Jail will be redeveloped into Bukit Bintang City Centre comprising a mixed development of office tower, hotel, serviced apartment tower, condominiums and a shopping centre, scheduled to be fully completed in the next 7 to 8 years.

Table 6: Shopping Centres Launched in 1H2008 Project Location Launching Date Approx. Lettable

Artist Impression of Southgate Area (sq ft) Southgate - Vox Building (63 Jalan Sungai Besi 13 June 2008 Approx. 145,800 Retail Lot) (approx. 22,000 for Figure 7 Vox Building) Tourist Arrivals and Receipts (2000 - 2008) 25,000 60,000 Retail centres which are undergoing various stages of refurbishment and upgrading works include Bangsar

50,000 Shopping Centre (BSC), Central Market, Ue3 and The Mines Shopping Fair. At the fringes of KL City, Bandar 20,000 Raya Developments Bhd (BRDB) will be upgrading BSC and also building a 12-storey office tower with a 40,000 4-storey retail annex known as BSC Phase 3. Meanwhile, Central Market will be upgraded by Kha Seng 15,000 30,000 Corporation Sdn Bhd with plans of developing the riverside into historical walk and alfresco dining outlets 10,000 and the portion fronting Jalan Kasturi converted into a covered mall. Ue3 shopping centre located in Cheras 20,000 will also be carrying out a RM100-million refurbishment exercise to reposition the centre into a lifestyle mall Tourist Arrivals ('000) Tourist

5,000 Receipts (RM'mil) Tourist 10,000 and it is scheduled for opening in the first half of 2009. In Seri Kembangan, the new owner of The Mines Shopping Fair, CapitaLand Retail, is carrying out repositioning and refurbishment works (internal finishes 0 0 and car park areas) to stay ahead of competition. 2000 2001 2002 2003 2004 2005 2006 2007 2008 (e) Tourist Arrivals ('000) Tourist Receipts (RM'mil) Source: KF Research/Tourism Malaysia

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Table 7: Proposed Shopping Centres Project Location Completion Date Approx. Lettable Area (sq ft) Paradigm Mall Petaling Jaya 2010 700,000 Lot G KL Sentral 2011 750,000 Sunway Velocity Jalan Peel 2013 N/A Bukit Bintang City Centre Bukit Bintang 2016 N/A The Sphere Bangsar South Bangsar Not finalised Not finalised

Artist impression of Paradigm Mall

Table 8: Shopping Centres Scheduled for Opening in 2H2008 Project Location Opening Date Anchor Tenant Harbour Place Klang 4Q 2008 Tune Group has ventured into Harbour Place

Figure 8 Prices & Rentals Achieved Rents for Ground Floor of Prime Centres in KL City (2000 - 1H2008) The rentals for prime centres in KL City remained firm in the first half of 2008. There was a prominent

40.00 transaction during the first half of 2008 i.e. the acquisition of 61.9% of for RM595 million by -listed CapitaLand Retail. 35.00

30.00 Table 9: Transactions of Shopping Centres in 1H2008 Project Location Transaction Remarks 25.00 Price (RM) 20.00 Sungei Wang Plaza Bukit Bintang Area 595,000,000 CapitaLand acquired approximately 61.9%,

Rental (RM psf) 15.00 equivalent to 510,418 sq ft of total retail strata area 10.00

5.00 Outlook 0.00 The recent fuel price increase has dampened both consumer sentiments and spending, resulting in lower

2000 2001 2002 2003 2004 2005 2006 2007 projected retail sales growth for 2008. The Malaysian Retailers Association has revised the estimated 1H2008 growth rate from 8% to 7% with the expected retail sales of RM68.69 billion for the year 2008. In spite Source: KF Research/Napic of the challenging economic environment, the Malaysian retail industry is expected to be buffered by sustained tourist spending. 10 Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru • 1st Half 2008 Knight Frank

Kuala Lumpur Hotel Market

Market Indications

“The local hotel industry The local hotel industry was resilient amidst tough market conditions and has continued its bullish was resilient amidst performance, supported by high tourist arrivals and receipts in the first six months of 2008. The tourist tough market conditions arrivals in May 2008 was recorded at 1.89 million; 2.7% higher than 1.84 million recorded for the and has continued its corresponding period in 2007. Statistics from the Ministry of Tourism Malaysia revealed that the largest number of tourists were from ASEAN countries, followed by Japan, China, Australia, Middle East and India. bullish performance….” The full year tourist arrivals is expected to reach 22.5 million (21 million: 2007) with tourist receipts of RM50 billion (RM45.7 billion: 2007).

The industry received further boost in February this year with the setting up of PEMUDAH (Special Task Force to Facilitate Business) aimed at reducing red tape in the application of licenses and permits for the setting up of new hotels. The setting up of this one-stop centre is anticipated to enhance the local hotel market competitiveness in the region.

Several 5-star hotel players made some exciting announcements in the first half of 2008 which include the approval for Grand Hyatt Hotel (450-room) at Jalan Pinang, Kuala Lumpur and the market entry of the prestigious St. Regis Hotel, which will be located at KL Sentral (200-room).

Supply & Demand One World Hotel

The current supply of 4-star and 5-star hotel rooms in KL City stood at 6,760 and 9,120 respectively, with the bulk of the supply being located within tourist belts in the city such as Jalan Sultan Ismail, Jalan Ampang, Jalan Bukit Bintang and the KLCC locality.

Figure 9 The average occupancy rate for both 4-star and 5-star hotels in KL City was recorded at 70% (as at first half Supply and Occupancy Rate of of 2008); 2% higher compared with the same corresponding period in 2007. 4-Star & 5-Star Hotels in KL City (2003 - 1H2008)

16,500 74 During the first half of the year, the 5-star 438-room One World Hotel in Bandar Utama made its debut in January 2008. Meanwhile, several hotels located in KL City which include the Impiana KLCC, Berjaya Times 16,000 72 Square Hotel and Renaissance Kuala Lumpur, were seen embarking on refurbishment works. Impiana KLCC

15,500 is currently undergoing expansion and will be adding another 180 rooms to its current 335 rooms. Berjaya 70 Times Square Hotel & Convention Centre’s three-phase refurbishment and redevelopment exercise (started 15,000 68 in April 2008 and costing RM20 million) is expected to be completed in September this year. Renaissance 14,500 Kuala Lumpur, meanwhile, will undergo a RM53 million facelift in 2008 and 2009. 66 14,000

64 Occupancy (%) Hotels which are scheduled to be completed by the end of this year include Hotel Grand Mercure Number of Rooms 13,500 Lakeside (August 2008), Royal Chulan Tower Hotel & Residence and The Gardens Hotel & Residences in 62 13,000 Mid Valley City.

12,500 60 Planned supply identified during the first six months of the year includes Grand Hyatt Hotel located along 12,000 58 Jalan Pinang. This 40-storey hotel to be developed by the Brunei Investment Agency will house 450 rooms

2003 2004 2005 2006 2007 and is estimated to cost about RM360 million. As for proposed supply, the announcement of the luxury 1H2008 Supply Occupancy Rate brand, St Regis, has enhanced Malaysia’s regional standing in the 5-star hotel category. The proposed St Regis development will consist of a 200-room hotel component and some 200 freehold luxury residences. Source: KF Research/MIHR The construction of the project is scheduled to start in 2010 and it is slated to open in 2014.

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Figure 10 Another identified proposed project is the redevelopment of Bangunan MAS by Permodalan Nasional Bhd Average Room Rate of 4-Star & (PNB). PNB acquired Bangunan MAS from Malaysia Airlines (MAS) two years ago and intends to redevelop 5-Star Hotels in KL City (2003 - 1H2008) the building into a hotel and apartments. PNB purchased the 35-storey building located along Jalan Sultan Ismail, Kuala Lumpur, for RM130 million. 400

350 Average Room Rates & Capital Values

300 The 4-star and 5-star hotels demonstrated strong performance as evident from the high Average Room Rate (ARR) achieved during the first half of 2008. The ARR for 5-star hotels was recorded at RM370 (first half of 250 2008), higher than RM320 recorded for the corresponding period in 2007. Notable hotels which recorded ARR above RM300 in the first half of 2008 were Hilton Kuala Lumpur (RM460), JW Marriott (RM390), 200 Mandarin Oriental (RM650) and The Westin (RM450). The ARR for 4-star hotels was recorded at RM200

Average Room Rate (RM) Average 150 between January and June this year, 10% higher than RM180 recorded between January and June in 2007. Several hotels that achieved ARR of more than RM200 during the first half of 2008 were Hotel Maya

100 (RM320), Traders Hotel (RM320), Concorde Hotel (RM250) and Boulevard Hotel at Mid Valley (RM220).

50 2003 2004 2005 2006 2007 1H 2008 Outlook 4-Star 5-Star The positive hotel performance in 2007 had continued into the first half of 2008 as reflected in the

Source: KF Research/MIHR strong occupancy and higher average room rate. The setting-up of stop centre (PEMUDAH) is timely to attract investors and new hotel operators entering into the local hotel market. However, the hotel industry is anticipated to undergo challenging market condition in the second half of 2008 with “The 4-star and 5-star rising operational cost and tougher economic environment. hotels demonstrated strong performance as evident from the high ARR achieved during the first half of 2008” 12 Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru • 1st Half 2008 Knight Frank

Figure 11 Office Supply and Occupancy in Penang Property Market Georgetown (2000 - 1H2008) Market Indications 8 80

• The State Government’s decision to allow owners of leasehold properties to apply for a change of 7 78 tenure to freehold will have a significant positive impact on property values. Subject to the payment of 76 6 a premium, leasehold residential landed properties can be converted to freehold whilst industrial and 74 commercial properties can now have their leasehold titles converted to a maximum of 99 years. 5 • Japan-based printed circuit board maker Ibiden Co Ltd recently announced an investment of RM1.2 72 4 billion to set up a facility on an 18-hectare site in Penang Science Park. 70 • Several other MNCs such as Motorola, P.I.E. as well as home grown industries are reinvesting to expand

3 Occupancy (%) Supply (mil sq ft) 68 their existing plants.

2 • Mah Sing Group recently soft-launched “Southbay”, a mixed development project on a 33.81-hectare 66 site in Batu Maung. With an expected GDV of RM1.3 billion, the site will have link houses, 3-storey and 1 64 4-storey bungalows, retail shops, 3-star to 5-star hotels, serviced apartments and a retail mall. • The residential property sector in Penang has been given a boost as the State has attracted a major 0 62 portion of the foreigners buying homes under the “Malaysia My Second Home” (MM2H) programme. 2000 2001 2002 2003 2004 2005 2006 2007

1H2008 • The second Penang Bridge linking Batu Maung on the island and on the mainland will now Supply Occupancy cost RM4.5 billion and will be completed in 2011 as scheduled. Source: KF Research/Napic High End Condominium • There were no new launches of high end condominium projects in the first half of 2008. • Most of the units in projects nearing completion have been sold, many at prices that have been revised upwards. • Sale activity of completed projects and those nearing completion within the prime areas of and indicated an increase with prices ranging from RM380 to RM600 per sq ft. • For fully furnished units with sizes ranging from 2,500 to 5,800 sq ft, monthly rentals range from RM5,000 to RM10,000 per unit per month.

Office • Existing office supply increased by 95,000 sq ft with the completion of Menara IJM located next to Tesco Hypermarket, Penang within the newer area known as MetroEast. • Additional supply will come from the following three projects located within the south-west district of the island:-

Table 10: Future Supply of Office Space Project Location Approx. Expected Completion Development along Gurney Drive Lettable Area (sq ft) Suntech City Bayan Baru 180,000 3Q 2008 The CEO Bukit Gambier 250,000 4Q 2009 BayCapital Bayan Baru 100,000 2010

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• The two most popular prime buildings saw a slight increase in occupancy rates which now stands at 80% to 95%. • Gross rentals of prime office buildings have generally remained unchanged at RM2.20 to RM2.70 per sq ft per month whilst those in secondary buildings range from RM1.50 to RM2.00 per sq ft per month. • Asking rentals of newly completed office buildings with better IT facilities are higher, ranging from RM2.50 to RM3.50 per sq ft per month. However achieved rentals are likely to be slightly lower.

Retail • The total supply of retail space as at first half of 2008 is estimated at 4.8 million sq ft. • With the anticipation of more tourist arrivals into Penang, the retail industry is expected to remain healthy. Tourist arrivals into Penang in 2007 numbered 3.44 million, an increase of approximately 11% over 2006 and these figures are projected to further increase to 4.7 million in 2010. • The table below shows the future supply of retail space from projects under construction and planned:

Table 11: Future Supply of Retail Space The newly completed Menara IJM Project Location Approx. Expected Lettable Completion Area (sq ft) * Aeon Seberang City 660,000 3Q 2008 * Phase I Georgetown 337,000 4Q 2008 * extension Georgetown 135,000 4Q 2008 * Penang Times Square Phase 2 Georgetown 229,000 2009/2010 * Komtar Phase 3 Georgetown 600,000 2009/2010 ** Georgetown 1,000,000 Scheduled 2010 ** extension Bayan Baru 400,000 Scheduled 2010 ** Penang Times Square Phase 3 Georgetown 290,000 Scheduled 2012 * under construction ** planned

Tesco Hypermarket, Penang • Occupancy rates of the prime shopping malls range from 90% to 95% whilst occupancy rates of secondary centres range from 60% to 90%. • Gross rentals of ground floor retail space in prime centres range from RM13.00 to RM30.00 per sq ft per month depending on the location and size of the units. • The Tesco Hypermarket at MetroEast on Penang Island with a net lettable area of 275,000 sq ft and 1,050 car park bays was sold for RM132 million in May 2008. The sale is analysed to RM480 per sq ft.

Outlook The overall outlook for the property market, which has been active for the past half year, appears to be moving towards consolidation. Sales are expected to be slower as potential purchasers defer their buying decisions in view of the various uncertainties as well as concerns of a global economic slowdown. 14 Real Estate Highlights - Kuala Lumpur | Penang | Johor Bahru • 1st Half 2008 Knight Frank

Johor Bahru Property Market

Market Indications • Johor’s GDP is projected to grow at 6.8% in 2008 with RM11 billion of Foreign Direct Investment (FDI) against 6.1% at RM8 billion in 2007. • The Government’s plan and commitment to improve and upgrade the infrastructure within (IM), will be a boost to the general economy as well as the property market. Some of the major on-going works include:

Johor Bahru City Square • The new Customs, Immigration and Quarantine (CIQ) Complex (RM1.26 billion) to be operational by December this year. • The RM1 billion Coastal Highway linking Johor Bahru city to Nusajaya in the west and / in the east, expected to be completed by 2010. • The RM190 million second bridge to be completed by 2010. • The Eastern Dispersal Link (EDL) which connects the new CIQ to the North-South Expressway at Pandan. EDL has a project value of RM1 billion, scheduled for completion by 2010. • The RM1.46 billion -Desaru Highway linking the Sultan Ismail Airport to Desaru, targeted for completion by end of 2008. • Investments secured for IM have amounted to about RM33 billion as of June 2008. This represents about 70% of the targeted investment of RM47 billion, for the period between 2006 and 2010. • The major transactions reported for IM include the following: • Kota Selat Sdn Bhd and Oakwood Asia Pasific Pte Ltd will jointly develop a 235-room serviced apartment known as the Oakwood Residence Johor in , at a total project cost of RM400 million. • Al Nibras2 Limited (a subsidiary of Kuwait Finance House), one of the three Middle Eastern conglomerates to develop NODE 1 in Nusajaya, has commenced the development of its portion measuring about 620 acres. This site is designated to be developed as the Cultural Cluster which includes Logistics Village, Creative Parks and Heritage District with properties like industrial, commercial and mixed residential. • Tune Hotels Sdn Bhd to invest RM20 million to develop a 3-star hotel in Danga Bay. • Paramount Corporation Berhad invested RM13 million to buy a 4-hectare site in East Ledang, Nusajaya, to build a Sri KDU Smart School at an estimated cost of RM40 million. • A JV between Nusajaya Medical Park and Columbia Asia to develop a 70-bed hospital which is expected to be operational in 2010. • Damac Properties LLC purchased 3 parcels of commercial land with a total land area of about Commercial district of Taman Sutera Utama 17.4 hectares within Puteri Harbour, Bandar Nusajaya at a consideration of about RM397 million. These lands will be developed upon with commercial and residential properties as well as a private marina, with an estimated GDV of about RM3.8 billion.

Residential • Oversupply situation in the mass housing market has somewhat eased in 2007, to 6,940 units completed yet unsold as at end of 2007, compared to 8,220 units in 2006. • New major launches include: • Setia Eco Garden by SP Setia Berhad at . This 1,363.52-acre mixed housing development offers a variety of residential products branded with SP Setia’s eco-theme, and planned with direct connection unto the Second Link Highway. Single storey houses are priced from RM230,000 per unit. • Taman Kempas Utama by IOI Group at Kempas, a 250-acre mixed residential development strategically located at the Kempas Interchange of the North-South Expressway. Out of the total land area, about 50 acres will be set aside for industrial development. It offers residential products within a gated and guarded community, with double storey terraced houses priced from RM260,000 per unit.

knightfrank.com Knight Frank Real Estate Highlights Kuala Lumpur | Penang | Johor Bahru • 1st Half 2008 15

Figure 12 • Bayu Puteri Marina by Bayu Bay Development Sdn Bhd comprising 100 waterfront bungalow Office Supply and Occupancy lots, 34 units of 2 ½ storey semi-detached houses and 24 units of superlink houses located at Trend in Johor Bahru Bayu Puteri area, with the asking price for the superlink houses from RM700,000 per unit. (2000 - 1H2008) • East Ledang by UEM Land Berhad at Nusajaya. A relatively high-end residential development 8,000,000 70 that promotes leisure lifestyle, with 87 units of double storey terraced houses and 52 units of 7,000,000 semi-detached houses launched in February 2008 from RM460,000 and RM880,000 per unit 68 respectively, reported to be well-received. 6,000,000 • Mon Calista by PJ Development Sdn Bhd at which features gated and guarded 66 5,000,000 semi-detached and detached houses, with semi-detached houses priced from RM600,000 per unit. 4,000,000 64 • With the committed investments secured for IM to-date and the positive perceptions on the economic

Supply (sq ft) spin-offs, interest for high-end residential properties by both foreigners and Malaysians have gained

3,000,000 Occupancy (%) 62 momentum. This new residential supply focusing on the leisure/resort living theme, some with 2,000,000 waterfront/marina and strata-titled horizontally and is anticipated to be well-received by investors. 60 1,000,000 Offices 0 58 • The total net lettable area of purpose-built office space in Johor Bahru is about 7 million sq ft. There is

2000 2001 2002 2003 2004 2005 2006 2007 no new supply for the market during the first six months of 2008. The average occupancy rate is in the 1H2008 Supply Occupancy region of 70%, or about 4.9 million sq ft occupied.

Source: KF Research • Prime office space is let at a gross rental of between RM2.30 and RM2.80 per sq ft per month whilst offices of average quality command a gross rental range of RM1.50 to RM2.00 per sq ft per month.

Retail • The total net lettable area of retail space (shopping complex, hypermarket and shopping arcade) in Figure 13 Johor Bahru is estimated at 8.6 million sq ft. The average occupancy rate is around 55% although prime Retail Supply and Occupancy centres have recorded occupancy rates in excess of 80%. Prime gross rents range from RM22.00 to Trend in Johor Bahru (2000 - 1H2008) RM30.00 per sq ft per month, for typical leased areas of between 200 sq ft and 300 sq ft. • New openings: 10,000,000 66 • Tesco Extra at (ex-Makro) in July 2008. 9,000,000 64 • Danga City Mall (previously known as Plaza Best World) and anchored by Metrojaya 8,000,000 Departmental Store, in August 2008. 62 7,000,000 • Sutera Mall, with gross floor area of about 600,000 sq ft at Taman Sutera Utama, anchored by 60 Carrefour, in August 2008. 6,000,000 • Proposed developments under construction: 5,000,000 58 • Tesco Desa Tebrau, KSL City at Taman Century, Jusco and Tesco at Taman , which

Supply (sq ft) 4,000,000 will collectively add approximately 2 million sq ft of retail space to the market.

56 Occupancy (%) 3,000,000 • Proposed developments: 54 • Hilltop at Nusajaya, planned for 1,000,000 sq ft of tenanted space and 5,000 car parks. 2,000,000 • Ikea Store at Desa Tebrau. 52 1,000,000

0 50 Outlook

2000 2001 2002 2003 2004 2005 2006 2007 The short term outlook will be challenging due to uncertainties posed by inflationary pressures. 1H2008 Supply Occupancy However, the property market is expected to be resilient and sustainable, driven mainly by positive

Source: KF Research developments of IM, a long-term economic project of national interest. Research

Knight Frank Research provides strategic advice, consultancy services and forecasting to a wide Malaysia Contacts range of clients worldwide including developers, investors, financial and corporate institutions. All Eric Y H Ooi recognize the need for the provision of expert independent advice customised to their specific Managing Director needs. [email protected] Chong Teck Seng Knight Frank Research Reports are also available at knightfrank.com Executive Director Valuation Americas Europe Africa Asia Pacific [email protected] United States United Kingdom Botswana Australia Zaharin Bin Ahmad Zamani Brazil Belgium Kenya Cambodia Executive Director Property Management Caribbean Czech Republic Malawi China [email protected] Chile France Nigeria India Sarkunan Subramaniam Germany South Africa Indonesia Executive Director Hungary Tanzania Macau Agency/Investment/Global Tenant Ireland Uganda Malaysia Solution Italy Zambia New Zealand [email protected] Monaco Zimbabwe Singapore Judy Ong Mei-Chen Poland Thailand Executive Director Portugal Valuation and Research & Consultancy [email protected] Russia Spain Matthias Loui Executive Director Netherlands Property/Facilities Management Ukraine [email protected] Tan Lay Kuen General Manager © Knight Frank 2008 This report is published for general information only. Although high standards have been used in the preparation Project Marketing of the information, analysis, views and projections presented in this report, no legal responsibility can be [email protected] accepted by Knight Frank Research or Knight Frank for any loss or damage resultant from the contents of this Leslie J H Kho documents. As a general report, this material does not necessarily represent the view of Knight Frank in relation Resident Director to particular properties or projects. Reproduction of this report in whole or in part is allowed with proper Johor Branch reference to Knight Frank Research. [email protected] Tay Tam Resident Director Penang Branch [email protected]

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