THE Klang Valley office market is expected to be stable in the short to medium term, particularly for well-located, good grade and dual-compliant (MSC-status and green-certified) office space. Overall, rental and occupancy rates are expected to hold firm.
"However, with the impending high supply of space in the city centre and city fringe, it is inevitable that there will be mounting pressure on occupancy and rental rates as the gap between supply and demands widens," says Sarkunan Subramaniam, managing director of Knight Frank Malaysia, when presenting The Edge/Knight Frank Kuala Lumpur Office Monitor for 2Q2013.
Office space in the city centre and city fringe will see an increase of about 21%, or more than 14 million sq ft by end-2016. The cumulative supply in the city centre has remained unchanged at 48.3 million sq ft since 4Q2012. Two buildings were completed in the city fringe during the period in review, bringing the cumulative supply to about 19.6 million sq ft.
The completions were Menara D'Damansara in Jalan Damansara, with 253,000 sq ft, and Menara Shell in KL Sentral, with 528,400 sq ft. Menara D'Damansara is part of an ongoing development in Glomac Damansara.
Sarkunan cautions that developers which continue to announce new projects, with office space as an integral component, should monitor the market closely and review their proposals periodically as well as engage in pre-leasing activities before commencing construction.
Sarkunan notes that the concerted efforts by InvestKL are expected to help cushion the high level of supply coming onstream in the medium term. InvestKL is a government initiative that aims to attract multinational companies to set up their regional hubs in Kuala Lumpur. So far, in collaboration with partners such as the Malaysia Investment Development Authority and Multimedia Development Corp, it has brought in 17 MNCs.
A resilient market
Despite the challenging office environment, owing to a supply-demand mismatch, the office market continued to be resilient. "While there was mixed performance in occupancy, rental rates remained competitive. Owners continued to work on retaining existing tenants and attracting new ones, while offering quality property management services to their tenants," says Sarkunan.
The overall occupancy rate in the city centre was stable, registering a 0.1% increase q-o-q to 81.6%, while the city fringe saw a 2.8% dip, bringing the rate down to 81.1%. The dip was attributed to the completion of Menara D'Damansara.
Sarkunan notes that Menara D'Damansara has yet to achieve a significant occupancy rate and has an asking rent of RM6 psf onwards.
The average occupancy rate in the Golden Triangle (GT) rose 0.5% q-o-q to 79.7% and central business district (CBD) dropped 1.6% to 82.6%.
In the city fringe, the completion of Menara D'Damansara pushed the occupancy rate in Damansara Heights (DH) down 10.5% to 78.1% q-o-q. In KL Sentral (KLS), the occupancy rate climbed 1.5% to 66.1% despite the completion of Menara Shell as it has secured a high tenancy commitment from Shell. Mid Valley City (MVC)/Bangsar/Pantai saw a 1.2% increase from last quarter to 89.2%.
The overall rental rate in the city centre was unchanged at RM5.97 psf from the previous quarter. In the city fringe, the overall rental rate rose 0.9% to RM5.52 psf. This was due to higher rental rates in new buildings such as Menara Shell.
In the city centre, GT saw a marginal dip of 0.3% q-o-q to RM6.27 psf while in the CBD, it remained unchanged at RM4.76 psf. Rental rates in DH and MVC/Bangsar/Pantai stayed at RM4.44 psf and RM5.54 psf respectively while in KLS, it rose 0.4% to RM7.03 psf.
Sarkunan says there were several notable movements of tenants, mainly in the city centre. Meanwhile, major leasing enquiries continued to come from international and multinational firms in sectors, such as oil and gas, business services and consultancy, telecommunications and financial services.
"The investment market was fairly active with several notable deals of decentralised office space in locations such as Bangsar South, Petaling Jaya and Putrajaya," says Sarkunan.
Among them was the sale of Block H at Oasis Square (NLA: 191,399 sq ft) in Ara Damansara for RM650 psf; Menara PMI in Jalan Changkat Ceylon (NLA: 104,011 sq ft) for RM577 psf; and Block 1, Tower 7, Avenue 3 at The Horizon in Bangsar South (NLA: 71,552 sq ft) for RM894 psf.