IN last week’s article, I wrote about Bank Negara Malaysia’s (BNM) report on the property market. BNM had quoted statistics and data that pointed towards a grim situation in the real estate sector, due to a vast oversupply in some property segments.
The report stated that an acute oversupply of office space and shopping complexes could pose a risk to macroeconomic and financial stability. It also revealed that last year’s bank financing in the non-residential sector had increased to RM213.4 billion from from RM209.1 billion in 2016.
What is “non-residential” sector? As the name suggests, this sector is all-encompassing and could run the gamut from shop houses to colleges and universities, from serviced apartments to hotels, from small-office-home-office (SoHo) units to hospitals. The possibility is endless.
The report revealed that loans taken for the purchase of shops accounted for a large 40 per cent of bank lending to the non-residential sector. The shop office segment is a very exciting sector that has seen diminished attention in the last few years.
The huge supply of serviced apartments and SoHo units built on commercial land has all but wiped out the traditional shop units found in every ‘taman’. Traditionally, land meant for commercial use would be built on with shop offices — two-, three- or even the rare four-storey shop offices. In recent years, more commercial land were filled with serviced apartments and SoHo units.
The shop office segment has always been one of the more resilient sectors in the market. Values for properties under this segment tended to appreciate at a steadier rate. When the market went south, their values moved downward slower than those of other segments in the market.
Such office shops were a favourite with seasoned investors as well as end-users. There would be a rush to secure corner lots, especially those that were near the main roads. The hope of these investors was, of course, to get a bank as a tenant. It didn’t get anymore “blue chip” than that. If they failed to attract a bank, the close back-up would be a McDonald’s or KFC or, more likely a ‘mamak’ shop.
Many of these seasoned investors would make a beeline for these corner lots and, in many cases, would purchase the lot next door as well, giving them the added benefit of being able to attract larger retailers who needed double frontage and additional space.
Drive around any housing estate and you could see the same scenario being played over and over again.
In recent years, I have noticed that the success of a commercial shop-office development would be greatly enhanced if the ground floor shops were able to attract food and beverage (F&B) tenants, especially those with modern, happening, hip and trendy names.
Once a few of the lots were occupied by these F&B operators, more would flock to the area and snap up the remaining lots. Rentals would soar and the whole place would develop a life of its own. Soon, the office spaces on the top floors would be also taken up, and the investors who bought these units would be smiling all the way to the bank.
As with any commercial space, once a tenant moves in, it is highly unlikely that the tenant would move out in the short term. Residential tenancies commonly run for two years with options to renew for another year. Commercial tenancies are normally for a minimum of three years with options to renew for further terms of three years each. In this way, a commercial investment offers the investor longer-term stability.
This sector has been neglected and ignored for a long time. I feel it’s time to bring it back into the mainstream. If you are serious about your property investment journey, this is a “not-to-be-missed” sector. So, look out for opportunities in the shop office sector, both in primary and secondary markets. There are plenty to be found. Speak to your friendly registered estate agent or negotiator and they wil sure be able to help you identify and shortlist some good possibilities.
Till then, happy hunting and may the force be with you.
The writer is a real estate practitioner who tries to manage the labyrinth of the property market honestly while consistently maintains a high standard of ethics in his practice of the profession. He welcomes feedback at email@example.com.