Competition among lessors of office space in Kuala Lumpur is expected to intensify this year, with the annual average rentals of office space in the business district projected at US$25.19 (RM76) per sq ft.
Global real estate firm Colliers International said completion of individual projects has been deferred from late 2010 to 2011.
"With a total of over 3.0 million sq ft new space coming on line by the end of 2011, competition for tenants is anticipated to intensify," Colliers said in its Asia Pacific Office Market Overview for the first quarter 2011.
According to the publication, which was made available to Business Times, prime office rental and capital values in Kuala Lumpur central area have improved slightly in the first quarter this year.
Colliers predicts the overall market to remain stable over the near term, on the back of economic growth of between 5 and 6 per cent this year.
The real estate firm anticipated that the new supply of office space in Kuala Lumpur business district to reach 3.2 million sq ft by year-end, bringing the total stock in the area to 31.1 million sq ft.
The take-up rate is expected to be 1.2 million sq ft, while the average vacancy for the year is estimated at 13.6 per cent.
For 2012, Colliers expects the average rentals to stay at US$25.19 per sq ft, while the new supply of office space in Kuala Lumpur to halve to 1.4 million sq ft, with the take-up rate to drop by a third to 800,000 sq ft.
Total stock is expected to increase slightly to 32.6 million sq ft, while average vacancy is also expected to trend upwards to 15 per cent.
Regionally, Colliers saw investment demand for office real estate remain strong in the first quarter this year, despite the recent interest rate rises.
"Firstly, the potential capital appreciation remained promising, given the continued rental catch-up in the market. Secondly, investors were encouraged by the sustained low-cost borrowing in the first quarter 2011," it said.
Buoyed by strong investment demand, it said individual centres such as Hong Kong and Taipei had seen office values reach new highs in the quarter under review. End-users remained keen on acquiring their office buildings for owner-occupation, it added.
On leasing, the real estate firm said although the individual centres are going to see an increase of three to four times of new supply this year, office rentals remained firm. This is due to positive business confidence and encouraging pre-commitment rate for a number of new developments.
The potential impact from the growing inflation is going to be the key uncertainty anticipated by most players in the office market.
Colliers, from its research, expects further rental and capital growth this year.
However, individual centres with major developments due for completion this year would provide a window of opportunity for tenants going for corporate relocation and upgrading over the near to medium term, it said.
"In particular, seismic concerns in Japan are expected to prompt more tenants to go for newer developments," it added.