AL-SALAM REIT ANNUAL REPORT 2019

Market Report Summary 50 ANNUAL REPORT 2019 AL-SALĀM REIT • We foresee downward rental adjustments for new PBOs in Johor Bahru city centre and Medini/Puteri Harbour localities in the near future with competitive rental rates ranging from RM4.00 to RM4.50 per square foot and RM3.00 to RM4.00 per square foot respectively. Rental rates for old PBOs in Johor Bahru city centre will adjust to a lower level of RM2.00 to RM3.00 per square foot to retain the existing tenants. The flight-to-quality phenomenon is expected as the office occupiers look to relocate to newer and better quality office space if competitive rentals are offered by the market. Old/ageing PBOs will face the risk of losing tenants due to the increasing number of better-featured PBOs in the market. Rental reduction and refurbishments are expected to retain the existing tenants. We reckon the vacancy rate of PBOs will increase to approximately 40% by end 2020. (Extracted from CBRE/WTW Research: Asia Market Outlook 2020 Malaysia) 5. Industrial In first half of 2019, Johor fell behind Penang, Kedah and Selangor, with total approved investment of about RM4 billion. Foreign direct investment was recorded at RM1.7 billion only. The remaining RM2.3 billion was contributed by domestic investments, which ranked Johor the first among all states. The total supply is estimated at 12,600 units as of 2019. Iskandar Malaysia (IM) saw the completions of Eco Business Park 2 (Phase 1), Taman Perindustrian Cemerlang (Phase 1 & 2) and De Hoff Park which totaled 248 cluster and semi-detached factories. 3 industrial parks launched new phases, viz. Eco Business Park (Phase 2), 5F Factory and Taman Perindustrian Cemerlang (Phase 4), mainly offering cluster and semi-detached factories which are the preferred choice for small-and-medium enterprise (SME) groups in the region. In 2019, transaction activity of industrial units remained active. Transaction volume increased 33% to 412 units in 1Q-3Q 2019 from 310 units in the corresponding period of 2018. The transaction value recorded at RM1,007 million in 1Q-3Q 2019, viz. rose by 28% as compared to RM784 million in 1Q-3Q 2018. Semi-detached factories were actively transacted as both transaction volume and value showed a growth of 33% and 42% respectively, at 185 units and RM412 million in the first nine months of 2019. Overall, the rental for industrial properties in the region remains stable, generally in the range of RM1.00 to RM1.80 per square foot for new industrial parks while the rentals for factories located in old industrial areas range from RM0.80 to RM1.40 per square foot. The current trend of new industrial schemes in Iskandar Malaysia have evolved into managed developments featuring high speed broadband, gated and guarded security system, green designs and others. They are mostly located near to ports and airport like Senai, Pasir Gudang and Iskandar Puteri. Older schemes are mainly located approximately 20-30 kilometres from ports and airport like Tampoi, Tebrau, Plentong and Masai localities. 24 % 1,776,00 0 sq.ft . 3,825,300 sq.ft . 1,814,000 sq.ft . 24 % 52 % Older Retail Mall New Retail Mall Upcoming Retail Mall TOTAL PRIVATE PURPOSE-BUILT OFFICE IN ISKANDAR MALAYSIA 9 8 7 6 5 4 3 2 0 0 5 10 15 20 25 30 35 40 1 2015 2016 2017 2018 2019 Supply (mil. sq. ft) Vacancy rate (%) TOTAL PRIVATE PURPOSE-BUILT OFFICE IN ISKANDAR MALAYSIA Total Price Space Vacancy Rate