KUALA LUMPUR (Feb 23): Knight Frank Malaysia expects 2017 to remain as an office-tenant-favoured market due to more incoming supply in 2017 and 2018.
Speaking at the 10th Malaysian Property Summit 2017, Knight Frank Malaysia Sdn Bhd executive director Teh Young Khean predicts the overall office market to remain subdued in 2017.
According to Knight Frank 2016 data, the cumulative supply of purpose-built offices in the Klang Valley stands at 96 million sq ft. For 2017 and 2018, the projected supplies are 101.76 million and 108.95 million, respectively.
“More than half of the supplies are located in Kuala Lumpur city [but] we [also] see a growing trend in KL fringe and Selangor,” said Teh in his session entitled “Klang Valley office market performance and outlook” in the summit held at the Sime Darby Convention Centre today.
According to him, the KL fringe area and Selangor will see an incoming supply of 3.86 million sq ft and 1.99 million sq ft of office space respectively, while supply in KL city will increase by 0.86 million sq ft.
“Next year (2018), we will see even more incoming supply in the KL City — about 4.35 million sq ft, due to the completion of Menara Tun Razak 1 and 2, Signature Tower @ TRX (Tun Razak Exchange) and Equatorial Plaza,” Teh said, adding that post-2018 will continue to see more supply coming into the market, such as TRX, Merdeka PNB118 and phase 4 of KLCC.
“Given the oversupply and other dampening factors, such as oil and gas companies surrendering space, we have seen a general downtrend of KL office occupancy rate and rental rate over the past two years,” he said. (See charts below.)
Nevertheless, KL fringe and Selangor office occupancy and rental rates are holding up strongly, with some showing slight improvements, “thanks to the improvement of connectivity, generally cheaper rent compared to KL city centre, as well as more quality office supply, such as in Bangsar South, Mid Valley and KL Sentral,” Teh highlighted.
He also noted more Grade A office rents are under pressure. “Some people asked me, in view of the abundant supply of Grade A offices, if we should build more Grade B offices now. I think there is no point building a Grade B office if you can build a Grade A one. I think developers should think out of the box, build something that others didn’t and focus more on amenities and lifestyle components to cater to the needs of tenants,” he proposed.
For existing building landlords, he suggested offering more attractive tenancy terms and incentives in return for longer tenancy terms. “Like it or not, we are now in a tenant market and it is so competitive now.”
However, he believes well-maintained MSC buildings within integrated developments and transit-oriented developments will continue to do well.