AL-SALAM REIT ANNUAL REPORT 2020

57 ANNUAL REPORT 2020 MARKET REPORT SUMMARY Another two (2) PBOs, Menara Bank Rakyat in JB city centre and MVS South Tower in Kota Southkey, were targeted to complete in 2021. If all under construction PBOs are completed as scheduled, the IM market will have an additional 1.7 million square feet of new office space by 2021, making a total of 7.3 million square feet, about 31% more than 5 years ago in 2015. Even though IM had no new supply in 2020, the current available space in IM will still need years to fill up. It may worsen with the incoming PBOs, exacerbated by the COVID-19 pandemic. Rental for purpose-built offices (PBOs) in Iskandar Malaysia (IM) is expected to remain challenging. Old and new office buildings are competing with each other to secure tenants. Older PBOs are holding on to their lower rental; while new PBOs are offering attractive rental packages with competitive rentals. The current rental of old PBOs which are mostly located in Johor Bahru city is about RM2.40 per square foot per month; while new PBOs which are mostly located in Medini or Puteri Harbour are asking RM3.50 per square foot per month. We anticipate that office demand may contract due to the spread of telework and work from home. While companies still prefer office-centered work, they are adapting to a more appropriate level of “hybrid” working style and social distancing in the physical office. It seems too early for us to judge the future demand of PBOs. PBOs will have to reinvent themselves to match the latent demand of commercial space in this dynamic market. The future development of PBO is uncertain but is also interesting. A re-vamped office market is expected in the new future due to the swift Information Technology (IT) upgrowth with multi-elements. A market player who could think out of the box with new ideas and elements to catch the transforming demand will be the next market leader. (Extracted from CBRE/WTW Research: 2021 Real Estate Market Outlook Malaysia) TOTAL PURPOSE-BUILT OFFICE IN ISKANDAR MALAYSIA SUPPLY AND VACANCY RATE OF PRIVATELY-OWNED PBO IN ISKANDAR MALAYSIA Old PBO 3,690,371 New PBO 1,895,393 Upcoming PBO 1,720,949 Abbreviation: PRO = Built O ce Source: NAPIC, CBRE | WTW Research Total PBO Space: 7,306,713 square feet 50% 26% 24% 0 1 2 3 4 5 6 Source: CBRE | WTW Research Vacancy Rate (%) Supply (million square feet) Total Private Space Vacancy Rate 2015 2016 2017 2018 2019 2020 24% 0 5 10 15 20 25 30 35 40 45 50 5. INDUSTRIAL Johor remained as one of the top states contributing to the total approved investments amongst all other states in Malaysia for 5 consecutive years. Johor ranked 3rd with a recorded RM3.6 billion of total approved investment for January –June 2020, accounting for about 10% of total national approved investment. On foreign direct investment, Johor is the 2nd top state that draws huge attention from foreign investors after Penang, with approved investment worth around RM2.4 billion for the same period. As at 1H 2020, 177 industrial properties worth RM584 million were transacted. The transaction volume fell by 52% from 365 units recorded in 1H 2019. The most significant transaction activity recorded was the purchase of 72 freehold industrial plots in the third phase of Southern Industry and Logistics Clusters (SiLC) in Iskandar Puteri worth RM434.3 million by AME Elite Consortium Bhd from UEM Sunrise Bhd with validity of the Head of Agreement (HOA) period until 7th Dec 2020. The site which encompasses of 169.8 acres of industrial plot forms part of the integrated industrial park known as SiLC Phase 3. Global technology giant, Microsoft is building a data centre in Kulai. The 40% completed data centre is expected to draw interest from Microsoft network companies to invest in Iskandar Malaysia in the near future. 745 acres of the Kulai Iskandar Data Exchange (KIDEX) is set to be the second new regional data hub in Malaysia after Cyberjaya. Its proximity and fiber connection to Singapore is an opportunity for KIDEX to be an alternative Data Hub for the Southeast Asia region.