THE MALAYSIAN RESERVE. 20TH JULY: Developers redesign common areas and public spaces to align with potential buyers’ changing lifestyle preferences
The demand for commercial properties has experienced fluctuations in response to economic conditions and evolving business needs, particularly in the wake of Covid-19.
Developers have recognised the potential to repurpose and reinvent these commercial spaces to meet the growing housing needs. In this article, The Malaysian Reserve (TMR) explores the trend of converting commercial properties into residential spaces, the challenges faced by developers and the benefits of such transformations.
In today’s dynamic market, commercial properties often face vacancies or struggle to attract tenants due to changes in industries, economic downturns, or shifts in business practices.
However, the pandemic has accelerated the trend of repurposing commercial properties to meet new demands.
The rise of remote work, the need for flexible workspaces and the desire for dedicated functional workspaces within homes have all contributed to this transformation.
Meeting Market Needs
Developers are swiftly adapting their offerings and sales strategies to cater to the evolving market landscape.
They are redesigning common areas and public spaces within housing developments to align with the changing lifestyle preferences of potential buyers. In some cases, developers are finding a middle ground by offering a service apartment concept while preserving the commercial title.
According to the Malaysia Land Properties Sdn Bhd (Mayland) MD Datuk Kevin Woo, the trend of reinventing commercial property accelerated in response to the pandemic due to the rise of remote work, the need for flexible workspaces and a dedicated functional workspace within the home.
This concept allows homebuyers to enjoy residential facilities complemented by necessary office spaces and tailored facilities.
“As a group, we sell commercial property in the form of service apartments. We are trying to rationalise that, to sell commercial service apartments, but we go back to residential rates,” he told TMR.
To address the challenges faced by developers since 2020, Woo said there has been a focus on creating larger apartments. For example, developers have increased the size of apartments from 500 sq ft to 650 sq ft.
This allows for more liveable spaces and the inclusion of small office areas within the units.
“Then came the evolution from two bedrooms to become one bedroom plus one office and we call it a dual key unit concept,” Woo explained.
He said the service apartment concept not only provides necessary office spaces but also facilitates important aspects such as seamless parcel delivery, systematic space for deliveries, a waiting room for drivers and gym amenities to appeal to those maintaining an active and healthy lifestyle.
However, Woo said one of the downsides of commercial properties converted into residential spaces is the higher utility prices as commercial rates tend to be higher than residential rates, which can pose a challenge for residents.
“That is one thing that we are trying to reconcile with the utilities board. And even though it is a commercial title, I think the residents should be charged residential rate rather than commercial rate,” he said.
Regulatory Environment and Profitability
Woo added the Malaysian regulatory environment sets limits on plot ratios rather than the number of units, determining the maximum developable space on a specific plot of land.
This factor, he said, significantly impacts housing profitability, land prices and the percentage of saleable areas for developers.
“As a developer, you get lesser (sic) floor area to sell because we are given 200,000 sq ft of plot ratio. Out of the 200,000 sq ft, by the rule of thumb, only 75% is sellable. That 25% includes the lobby corridor, public areas and car park that is not sellable,” he said.
To improve profitability, Woo called for a supportive regulatory approach that considers net plot ratios rather than gross can be beneficial. This would allow sellable areas and common areas to be calculated together, making it more favourable for developers.
Despite the challenges, he said commercial properties remain attractive investments for various reasons as they offer better capital gains and faster acquisition compared to residential properties.
Additionally, commercial properties are more tenant-friendly, as businesses are more inclined to rent commercial spaces.
“Commercial properties are more tenant-friendly because they are freer to do what they want. If they are doing business, they’re more inclined to rent,” he said.
The conversion of commercial properties into residential spaces contributes to the revitalisation of downtown areas, enhancing property rental values and boosting local economies.
By transforming unused or dilapidated buildings into vibrant residential communities, Woo said the developers can contribute to the overall urban rejuvenation efforts.
“For example, if I’m the owner of a commercial property if I lease it to a restaurant or a commercial guy doing a coffee shop, they will be more regular in paying off their rental because it’s commercial-based, with fewer complaints because they use it as a restaurant or cafe,” he explained.
Challenges and Future Outlook
Post-Covid-19, Woo noted that almost all developers face challenges such as declining sales of high-value properties and a lower rental market. These challenges are driven by factors such as the decline in foreign workers and expatriates, as well as the impact of stringent procedures and visa processes.
Other than that, he said developers also grapple with the shortage of manpower and the emergence of real estate agents among young individuals, which presents a new threat to traditional estate business models.
“Now, I think there are so many young and capable developers. The agents are like second-liner developers. Therefore, as a major developer, we need to keep on improving ourselves to stay relevant and competitive in the market,” he said.
The trend of converting commercial properties into residential spaces reflects a response to changing market dynamics, urban revitalisation efforts and evolving consumer preferences.
These post-Covid property lifestyle trends emphasise the importance of adaptable spaces that benefit developers, communities and residents alike. By repurposing commercial properties, developers contribute to the transformation of unused spaces into vibrant residential communities, fostering economic growth and enhancing the overall quality of urban living.
Other than Woo, TMR also reached out to another developer, UEM Sunrise Bhd, for comment, but was unable to obtain a response at the time of publication.