The Klang Valley office market is in a state of oversupply. The pandemic has made it worse. But landlords have been trying to get creative to maximise the value of their assets.
CBRE|WTW in its 2022 Market Outlook Report says the Klang Valley office sector is a tenants’ market, with landlords focusing on tenant retention via cost-cutting, asset enhancement and leasing strategies. Companies are benefitting from the current market to secure more favourable leasing terms. Landlords are enhancing building specs and offering more flexible leasing arrangements to drive or retain the occupancy.
According to Knight Frank Research, the average rental rate of office space in the Kuala Lumpur City (KL City) area retreated to RM6.79 per sq ft per month in the second half of 2021 (compared with RM6.87 in the first half), as the pandemic continued to impact the economy and businesses.
Similar to KL City, Knight Frank Research says the average office rent within the KL fringe area in the second half of 2021 was also lower at RM5.60 per sq ft per month (compared with RM5.69 per sq ft during the first half of the year).
In Selangor, it declined marginally to RM4.10 per sq ft per month during the period under review (from RM4.15 per sq ft per month in the first half).
During the review period, Knight Frank Research says asking rents of Prime A+ and Grade A office space within the KL City area ranged from RM5 per sq ft to RM12 per sq ft per month, depending on location. Within the new central business district (CBD), rentals ranged between RM7 per sq ft and RM12 per sq ft per month, while in the old CBD, it ranged from RM5 per sq ft to RM6.50 per sq ft per month.
According to Knight Frank Research in its Real Estate Highlights for the second half of 2021, the cumulative supply of office space in Klang Valley stood at around 112.6 million sq ft during the period under review, following the completions of Plaza Conlay@Conlay 301 and Imazium@Uptown in Selangor.
It adds that there are nine office buildings scheduled for completion by the first half of 2022, with five located in KL City and two each within the KL fringe area and Selangor. Upcoming completions in KL City are Menara Affin, PNB 1194, The Stride@Bukit Bintang City Centre (BBCC), Merdeka 118 Tower and UOB Tower 2.
In the KL fringe area, the upcoming buildings are The MET Corporate Towers and Aspire Tower. The impending completions in Selangor are Empire City Block J and Block G. Collectively, these completions will add around 5.2 million sq ft of space to Klang Valley’s existing cumulative office stock.
Amid growing challenges in the office market, Knight Frank Research says the overall occupancy rate of purpose-built office space in the KL City area dipped further to record at 65.5% during the second half of 2021. Similarly, the occupational demand in Selangor was also under pressure at 74.2%, compared with 75.8% in the first half of last year. Meanwhile, the overall occupancy rate within the KL fringe area remained resilient during the review period at 86.1%, compared with 85.9% in the first half of 2021.
Setting new benchmarks in sustainability, Knight Frank Research says the Merdeka 118 tower will be the first building in the country to earn platinum rating with international sustainability certification. “The tower includes 1.7 million sq ft of net lettable area of premium Grade A rentable office space, while the top 17 floors will house the first and only Park Hyatt Hotel in Malaysia. Knight Frank Research notes that the Merdeka 118 tower, which is 85% completed, is on track for completion by this year.
With the onset of the pandemic, CBRE|WTW says the movement control order in June last year prolonged companies’ work-from-home (WFH) arrangements and delayed the return to offices. Depending on the nature of work, CBRE|WTW says most organisations are likely to adopt a hybrid working mode.
Another notable trend is the conversion of office buildings into hotels as an alternative way to maximise asset value.
Many factors are at play in development of office space – general market conditions, flow of foreign direct investment, demand for office space, attitudes towards work in a confined space, travel time and amenities provided (gym, restaurants, newsstands etc). The best approach is to hedge “bets” with office space, hotel and other services in a building that straddles a transport hub?
Reference:
Landlords maximising value amid Covid and oversupply, Eugene Mahalingam, The Star,
19 Feb 2022
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