Malaysian office space to remain vibrant despite influx of new supply
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The Klang Valley office market is expected to remain vibrant this year, despite the influx of new buildings which is expected to affect occupancy rates, said Knight Frank Malaysia. “Due to the influx of new buildings, particularly in TRX, occupancy rate in Kuala Lumpur city is expected to decline marginally. However, rental rates will continue to hold steady as newer buildings tend to command higher rental rates,” it said in its Real Estate Highlights 2nd Half 2018 report.
The report highlighted the trend of co-working and shared services as a sweet spot in the challenging office market environment.
Labelled “space as a service”, the rising popularity of this market segment is demand driven by freelancers, start-ups and small and medium sized entrepreneurs. Knight Frank expects to see active take-up by co-working, shared services and IT related industries this year.
“Moving into 2019, occupancies in selected sub-office office markets are expected to be under pressure due to heightened competition from impending and existing office stock while rentals will continue to hold steady as newer buildings tend to command higher rates.
“We continue to observe active enquiries and leasing activities in the co-working and IT related segments. Also, an increasing number of older buildings are looking into repositioning and refurbishment to meet current occupier needs,” said Knight Frank Malaysia executive director of corporate services Teh Young Khean.
Dated but well located office buildings such as Menara Weld, Menara Standard Chartered, Menara Maxis and Menara Milenium will reportedly be undergoing repositioning/upgrading works to improve their market competitiveness in terms of rental and occupancy levels.
Knight Frank noted that the new government’s concerted efforts to implement numerous regulatory reforms will augur well for the business operating environment and this is expected to be positive for the country’s economic and property market performance over the longer term.
“Knight Frank expects to see active take-up by co-working, shared services and IT related industries this year.”
Looking back at 2H2018, the cumulative supply of purpose-built office space in Kuala Lumpur and Selangor stood at 103.17 million sq ft following the completion of six buildings with a combined space of 1.84 million sq ft.
In 1H2019, office buildings slated for completion include The Exchange 106, Menara Prudential, Menara Star 2, 1Powerhouse and Symphony Square.
Overall occupancy rate for Kuala Lumpur city was about 78.7% in 2H2018 compared with 79% in 1H2018. The overall occupancy rate for decentralised office locations in Kuala Lumpur fringe fell to 82.2% from 83.8% during the same period.
In Selangor, overall occupancy was slightly lower at 78.3% in 2H2018 compared with 79.2% in 1H2018.
The average rentals in Kuala Lumpur fringe and Selangor rose marginally in 2H2018 to RM5.75 psf and RM4.22 psf respectively compared with RM5.72 psf and RM4.20 psf respectively in 1H2018.
However, average rental in Kuala Lumpur city remained flat at RM7.15 psf as owners and landlords of newer office buildings offered competitive rental and attractive tenancy terms to improve take-up.
Questions & Answers
Q.What caused the overall office occupancy rate in Kuala Lumpur city to decline in 2H2018?
What caused the overall office occupancy rate in Kuala Lumpur city to decline in 2H2018?
The occupancy rate in Kuala Lumpur city declined marginally due to the influx of new buildings, particularly in TRX. Overall occupancy for Kuala Lumpur city was about 78.7% in 2H2018 compared with 79% in 1H2018.
Q.Which specific types of businesses are driving demand for office space in the current market?
Which specific types of businesses are driving demand for office space in the current market?
Demand is primarily driven by freelancers, start-ups, and small and medium sized entrepreneurs in the co-working and shared services segment. Knight Frank also expects active take-up from IT related industries.
Q.How are older, well-located office buildings in Kuala Lumpur adapting to the current market challenges?
How are older, well-located office buildings in Kuala Lumpur adapting to the current market challenges?
An increasing number of older, well-located buildings like Menara Weld and Menara Standard Chartered are undergoing repositioning and refurbishment. This aims to improve their market competitiveness in terms of rental and occupancy levels and meet current occupier needs.
Q.Did average rental rates in Kuala Lumpur city increase or decrease during the second half of 2018?
Did average rental rates in Kuala Lumpur city increase or decrease during the second half of 2018?
Average rental rates in Kuala Lumpur city remained flat at RM7.15 psf during 2H2018. Owners and landlords of newer office buildings offered competitive rental and attractive tenancy terms, even as overall occupancy declined slightly.