Same old story with office and retail property segments

PETALING JAYA (Feb 19): The large incoming supply does not bode well for the office and retail property segments as rentals and occupancy rates face more downward pressure, according to Rahim & Co International Sdn Bhd.

The property consultancy’s 2018/2019 property market research publication stated that there are  about 136 million sq ft of office space as at end-September 2018 with an estimated incoming supply of 18 to 20 million sq ft to be introduced into the market.

Based on the historical average take-up of 3 million sq ft per annum, it will take at least six years to absorb the incoming supply thus average occupancy and rental rates are expected to be under pressure, said Rahim & Co research director Sulaiman Saheh.

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He added that the asking rents for office buildings have seen a drop of 20% while effective rents have dropped between 8% and 10% in 2018 against the previous year.

“Office market recovery will take a little more than one year because of the incoming supply as well as the global economic situation,” he said at a media conference after the launch of the research report in Kuala Lumpur today.

Meanwhile, retail mall spaces are also at risk of oversupply, with new malls soon to come into the market.

In the Klang Valley, five malls are expected to be completed this year, namely TRX Lifestyle Quarter, The Linc, Datum Jelatek Mall, Tropicana Gardens Mall and Central i-City.

These new malls will add another 11 million sq ft of retail space to the 71.5 million sq ft of existing supply in Klang Valley.

Nevertheless, retail occupancy rates in the Klang Valley have been holding up above the 80% level so far, but Sulaiman warned that this could fall below the 80% mark should more malls swarm the market.