Boston, MA -- (SBWIRE) -- 01/09/2014 -- Overall, BMI has a positive outlook for the Malaysian commercial real estate sector. In particular positive demographics with increasing income levels, strong FDI levels and the government's plan to increase the population of the Kuala Lumpur area to 10 million from the current 6 million by 2020 will also spur greater property demand. However, an oversupply of office and retail space is threatening rental rates, as well as a mismatch of investor specifications and new developments.

There are strong downside risks to our forecasts; with an estimated 17 million square feet coming online between 2015-2017 demand would have to double to absorb this supply. The over-supply of commercial real estate could result in depressed rentals and yields. Additional downside risks to the market is the vacancies resulting from a mismatch of specifications and tenant's needs, according to an analyst at Savills Research there is a trend of tenants leaving buildings that are 10-15 years old as a result of poor maintenance standards.

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After enduring a disappointing Q113 and periods of investor caution in the months preceding the May elections, both economic growth and investor confidence have returned to the Malaysian market. Despite improvements in the overall investment climate, weak external demand and persistent structural difficulties BMI is forecasting GDP growth of 4.6% for2013. Discouraging capital flight, stabilizing inflation, and working to curb speculative investment will be the priorities of the BN party, having recently survived the parliamentary elections.

While oversupply remains a concern in the office sector, Malaysia's retail sector has benefitted strongly from increased consumption levels flowing from a rising and increasingly urbanized middle class. The 2013 implementation of a minimum wage has also helped stabilize a foundering labour market.

We do not expect rents to move much in the short term as demand and foreign investment continues to return to the market; price levels into 2014 will largely be dependent on continued investor confidence Malaysian financial regulation as well as economic data from the United States and China.

Key forecasts 2013-2014 (Oct-Mar):

- Kota Kinabalu is the only region forecasted to experience rent increases for office space over the forecast period, coming in at 5%
- Rental rates for retail spaces are forecasted to remain stable for all regions
- All regions are going to face increases of 5% for industrial rental rates

Key developments

- The office sector is now over supplied especially following the completion of more than 12 major office developments in Klang Valley.

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