18 Sep

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New supply of office space in three years

OFFICE rentals in Malaysia are expected to remain flat this year, as new supply of space over the next three years, primarily within the Klang Valley, will continue to make for a highly competitive leasing environment and further boost the city’s appeal as a business hub.

Khong & Jaafar Sdn Bhd managing director Elvin Fernandez says since the global financial crisis, average rental rates for Grade A offices within the Klang Valley had stabilised to between RM7 and RM8 psf.

“Nothing has changed for about a year. We’re currently in the post-crisis level where I don’t expect to see any upward movement in rents or values,” he tells StarBizWeek.

Fernandez says he expects rental rates of prime buildings to remain around RM7 psf, adding that landlords of buildings not located within prime areas may need to lower their rents (below RM7 psf) to attract tenants.

Office market size in Klang Valley

According to statistics by the National Property Information Centre, there is an estimated future supply of 20.5 million sq ft office space within the Klang Valley as of March 2010. Existing supply stood at 90.57 million sq ft, which Fernandez believes is “a fair amount.”

He says the statistic excluded large scale projects such as Permodalan Nasional Bhd’s proposed 100-storey skyscraper that is to be built near the Stadium Merdeka site, Uda Holdings Bhd’s redevelopment of the Pudu prison site and Malaysian Resources Corp Bhd’s Sungai Buloh redevelopment project, among others.

“Over the last five years, an average of two million sq ft of office space is taken up each year. We don’t expect a take-up rate of beyond two million sq ft for this year unless there’s rapid economic growth.”

Fernandez says the performance of the office sub sector was directly correlated to the health of the economy.

“With rapid economic growth, there would be more multinationals and foreign direct investments coming into the country that would help take up the spaces. So far, economic growth in the first two quarters have been good but even the authorities expect a slowdown in the second half of the year.”

He adds that there was still a lingering concern that the global economy could experience a sudden slowdown. In terms of rentals, Fernandez believes that there has to be sustained economic growth for about two years for the (office) market to “pick up.”

CB Richard Ellis Malaysia Sdn Bhd (CBRE) executive chairman Chris Boyd also says that rentals for Grade A office space is likely to remain at around RM7 psf for this year, adding that the Klang Valley remains an attractive location for companies requiring office space.

“Out of the 14 countries in the region, Kuala Lumpur is the fourth cheapest, behind Manila, Bangkok and Jakarta. We are also nearly half of our next competitor, Taipei.”

Boyd adds that the slew of new projects in the pipeline, such as the development in Jalan Duta by the Naza Group and the recently announced RM2bil project within the KLCC vicinity, would help “put Malaysia on the map.”

A property analyst also says office rentals would remain relatively stable this year, especially properties within prime locations.

“It’s all about location. Naturally owners of offices outside the Klang Valley or are not easily accessible will not be able to earn premium rentals.”

Boyd however believes that offices outside of the Klang Valley are also starting to reap better rental rates. “It’s true that you put your classiest buildings within the KLCC area. However, the trend is changing. There are a lot of areas where there is a high concentration of people that can earn good rentals.

“Today, even suburban buildings are being built to better quality specs. Areas such as Cyberjaya, are doing well,” he says.

According to recent report by CBRE, the Kuala Lumpur office market was mostly muted during the first half of 2010, with little movement in occupancy rates or rentals. As of the second quarter of 2010, prime average gross asking rents for Grade A offices in Kuala Lumpur were RM7 psf, with overall occupancy at 86.6%.

CBRE projects that another 1.7 million sq ft of office space is scheduled to be completed in Kuala Lumpur by end-2010. This includes the Hampshire Place Corporate Office Tower and Menara Worldwide within the Golden Triangle area, Capital Square Office Tower 2 (within the central business district), the BRDB Office Tower, BZ-HUB @ One Mont’ Kiara as well as Menara Ireka @ One Mont’ Kiara.

Going forward, CBRE estimates another 2.5 million sq ft of office space to be completed in Kuala Lumpur in 2011, with another 4.9 million sq ft in 2012. It adds that there were also numerous projects in the planning stages, accounting for at least 11 million sq ft.

CBRE said the cumulative supply of office space in the Klang Valley as of end-2Q10 stood at 79 million sq ft, up from 77.7 million sq ft as of end-2009. Of this, the total supply in Kuala Lumpur as of end-2Q10 was approximately 63.1 million sq ft, of which 41% is located in the Golden Triangle are, followed by suburban areas at 28% and central business district at 21%.

Source: thestar biz

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