AL-SALAM REIT ANNUAL REPORT 2019

49 ANNUAL REPORT 2019 Market Report Summary AL-SALĀM REIT • (Extracted from CBRE/WTW Research: Asia Market Outlook 2020 Malaysia) 4. Office Purpose-built office (PBO) market remained subdued with new office buildings continue entering the market. The vacancy rate hiked up above 35% and market players are offering competitive rental packages to seize the limited pool of office users. There were two new completions in the region, i.e. d’Pristine in Medini and Menara MBJB in Johor Bahru city centre. These two buildings brought additional 870,000 square feet of lettable space to the already-crowded IM PBO market. According to NAPIC Report 1H 2019, the existing office space in Iskandar Malaysia was 10.39 million sf, about 7.59 million square feet privately-owned while government buildings took the remaining 2.80 million square feet. Out of 7.59 million square feet of private office space, 5.17 million square feet was occupied in 2018. The vacancy rate by end of 2019 is estimated at about 36%. The rising vacancy rate is mainly contributed by a huge flow of private office space into the market since year 2014. Between 2014 and 2018, a total of 1.7 million square feet of new office space entered into the market. In addition, 1.78 million square feet of office space is presently in the pipeline and will enter the market by 2020/2021. Upon full completion, new PBO will contribute almost 50% of the entire office supply. We anticipate the occupancy of office in IM will remain subdued while competitive rental packages will be offered to attract users. 3. Retail New shopping malls were springing up all over Iskandar Malaysia, exciting avid shoppers in the region. In 2019, Iskandar Malaysia welcomed the opening of 5 malls, i.e. R&F Mall, The Mall @ Mid Valley SouthKey, Toppen Shopping Centre JB, Beletime Danga Bay and Sunway Big Box. There were also the openings of the third phase of Johor Premium Outlets (JPO) and Tesco Setia Tropika. The above-mentioned new malls and hypermarkets added a total of 3.34 million square feet of retail space into the market, bringing the total retail space to approximately 21.88 million square feet. There are 4 upcoming malls with expected completion around 2020/2021, which will contribute an additional 1 million square feet of retail space. With the emergence of new malls, stiff competition between malls is expected, bringing pressure on both rental and occupancy rates. Shopping malls with strong management teams to curate the right tenant mix and concepts are envisaged to perform well and secure high occupancy rates. In contrast, shopping malls which cannot maintain their footfall will face the difficulty of retaining retailers or even closure of the mall. For instance, Danga City Mall in Johor Bahru city centre closed for business in mid 2018 while Skudai Parade, auctioned 231 stratified retail lots in the market. The average rental for prime shopping malls in good locations remained around RM25 per square foot. Prime shopping malls registering strong footfall are envisaged to have positive rental reversions. In comparison, rental reduction can be foreseen by struggling shopping malls. Based on a retail survey, the vacancy rate for retail mall in 2019 stood at approximately 30% and may increase to 35% in 2020. 1,054,70 0 sq.ft . 7,658,000 sq.ft . 9,362,04 7 sq.ft . 6 % 52 % 42 % Older Retail Mall New Retail Mall Upcoming Retail Mall 0 0 10 20 30 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 2015 2016 2017 2018 2019 Cummulative Supply Average Rental Cummulative Supply (mil. sq. ft) RM sq. ft. CUMULATIVE SUPPLY AND AVERAGE RENTAL OF RETAIL MALL IN ISKANDAR MALAYSIA SUPPLY OF RETAIL MALL IN ISKANDAR MALAYSIA