By Khairie Hisyam
Despite its resilience against the supply-demand mismatch in 1H2013, the Kuala Lumpur office market is expected to remain challenging as supply continues to outstrip demand, said real estate consultants Knight Frank Malaysia.
Additionally, a look at occupancy and rental trends since 2005 up to the first half of 2013 shows that rental rates are still on a general uptrend despite supply exceeding demand in recent years.
While cumulative supply of purpose-built office space (PBO) within Kuala Lumpur city itself remained constant at 48.3 million sq ft for the six-month period, the PBO supply in the fringe areas of the city — which includes KL Sentral, Mid Valley City, Bangsar and Pantai areas — went up by about 2.1 million sq ft to 19.6 million sq ft.
The 12% increase, driven by five new PBO completions, led to average occupancy rate declining to 82.2%, down 4.8% compared to 2H2012. KL Sentral area was hit hardest in terms of occupancy levels as the 1.9 million sq ft of new space in the area amounted to about 34.1% of its existing stock.
Notably, Kuala Lumpur city fringe areas are set to see another 2.1 million sq ft in new PBO supply scheduled for completion later this year, of which 1.7 million sq ft will be in the KL Sentral area.
In comparison, the lack of new supply in the city itself saw average occupancy rise slightly to 81.6%, a 3% increase over 2H2012. The city itself is slated to see further incoming supply next year as the scheduled completions of Menara Hap Seng 2 and Crest Sultan Ismail originally planned for 213 were delayed to 2014.
Rentals remain firm
In the first half of the year, rental rates in both the city and its fringe areas inched slightly upwards despite the supply–demand mismatch in the latter area.
Average achieved rental rates in the Kuala Lumpur rose by 12 sen per sq ft (psf) at RM5.97 in 1H2013 compared to 2H2012 while the city fringe areas recorded a 10 sen increase over the same period to RM5.50 psf in 1H2013.
Notably, KL Sentral outstrips the average achieved rental rates with RM7.07 psf.
Within the city, the golden triangle area’s average stands at RM6.28 psf while the central business district (CBD) saw an average achieved rental rate of RM4.76 psf. In the city fringes, Damansara Heights recorded an average of RM4.44 psf while Mid Valley City, Bangsar and Pantai saw an average of RM5.54 psf.
“Prime A and A+ grade offices continued to command higher monthly rental rates ranging from RM6.50 per sq ft to RM12.00 per sq ft,” said Knight Frank.
Despite its strong average achieve rental rates, the decentralised location of KL Sentral is expected to face further pressure in terms of occupancy and rental rates as some 1.9 million sq ft was recently completed and an additional 1.7 million sq ft by end of the year.
“The short term threat from these completions may, however, be mitigated as several buildings have secured anchor tenants,” said Knight Frank.
“Furthermore, the impending opening of Nu Sentral later this year is expected to improve integration between the various completed components within KL Sentral and add further appeal to the transportation hub as a popular alternative office location, thus leading to improved demand and absorption rates in the medium to longer term,” it added.
As for the city itself, the real estate researchers feel demand for good grade dual-compliant office space is expected to remain resilient in the short-term. “Owners of old and dated office buildings are proactively seeking to upgrade and enhance their assets in a bid to remain competitive and retain tenants (and to attract new ones) amid a challenging leasing market.”
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