IS office space glut in Kuala Lumpur likely to worsen? Kuala Lumpur may attract foreign investments and multinational companies, but office rents are expected to remain competitive due to oversupply in certain locations.
The total existing space for purpose-built office in Malaysia in the first quarter (Q1) was 16,162.87 sq m, while occupancy stood at 12,514.15 sq m, or 77.4 per cent, according to the National Property Information Centre’s Q1 report.
The report showed in Kuala Lumpur, there is 8,394.7 sq m of existing space for purpose-built offices and the occupancy is 6,573.53 sq m, or 78.3 per cent.
Selangor has 3,403.52 sq m of existing space with occupancy of 2,513.55 sq m, or 73.9 per cent. The substantial supply of office space due to come to the market is expected to result in vacancy rates rising significantly.
Under construction is The Exchange 106 and a few other towers in the Tun Razak Exchange, the 88-storey Signature Tower at Bukit Bintang City Centre, and Merdeka PNB 118.
There are a few other major office developments that are part of massive integrated commercial projects in the city which have been announced and, if launched and completed, will add significantly to the future supply of office space in Kuala Lumpur.
They include KL Eco City, KL Sentral, Tradewinds Towers (50- and 26-storey office towers), Lot 185 KLCC, Tradewinds Square (proposed 110-storey corporate tower and 61-storey mixed use tower) and the 80-storey office tower that will be added to Menara Dayabumi.
Pelaburan Hartanah Bhd is also developing several office towers on land that used to house Unilever Malaysia’s soap and margarine manufacturing plant along Jalan Bangsar, while Tenaga Nasional Bhd has started a few commercial projects on its Bangsar land.
“All these developments will increase the supply of office space substantially and this has given rise to fears of an acute oversupply situation in the coming years,” Henry Butcher Malaysia has said.
Bank Negara Malaysia, in its report for the third quarter of last year, warned of an impending glut in office space, which may result in one in three offices to be vacant by 2021.
CBRE WTW said in its 2018 Asia Pacific Real Estate Market Outlook that the overall purpose-built office market is expected to remain challenging.
It currently has a total supply of 105.1 million sq ft and completion of some 4.13 million sq ft of office space by this year is expected to put pressure on the occupancy rate and rental market, it said.
Public Mutual Office, Menara Suezcap Tower 1, Sunway Geo and UOA Commercial Centre are some of the new additions.
The report also stated that last year, the average prime rental in Kuala Lumpur was RM7 per sq ft. It is expected to decline further in view of the competition among new buildings and ample future supply.
Knight Frank Malaysia executive director of corporate services Teh Young Khean said the office market outlook for both Kuala Lumpur and Selangor remains lacklustre.
Impending supply, coupled with a tight leasing market, will continue to put pressure on occupancy and rental rates, he said.
“Landlords with older and newly completed buildings, especially in Kuala Lumpur, are more accommodating in providing additional incentives to retain existing tenants as well as to attract potential tenants,” said Teh.
The office rental market in Kuala Lumpur recorded the steepest decline in the Asia-Pacific region in the second quarter, according to Knight Frank’s Asia-Pacific Prime Office Rental Index for the second quarter.
The index showed Kuala Lumpur’s office rent had declined 0.8 per cent over the quarter.
On the overall office rental market in Asia Pacific, Knight Frank Asia-Pacific’s head of research Nicholas Holt said steady demand seen in the prime office market is expected to bolster rental growth for the second half of the year.
“Despite several headwinds, including trade rensions, regional economic growth continues to fuel demand for Grade-A office space,” he said.
Knight Frank’s Asia-Pacific office rental index increased 2.4 per cent quarter-on-quarter to 137.2 points, surpassing the 0.9 per cent growth recorded in the first quarter.
The main cities driving growth this quarter were Tokyo, Bengaluru, Hong Kong and Sydney — the markets that are facing supply constraints.