Challenging outlook for office sector, KL City rents under pressure

PETALING JAYA (Sept 4): Office rents in Kuala Lumpur city centre (KL City) saw a marginal decline of 0.2% in the second quarter of 2019 (2Q2019) from the previous quarter and  0.7% compared with a  year ago, according to Knight Frank’s Asia-Pacific (APAC) Prime Office Rental Index Q22019.

“Faced with the high impending office supply driven by new construction, prime grade office rents in KL City continue to be under pressure with landlords competing to attract new occupiers as well as to retain existing tenants,” Knight Frank Malaysia executive director of corporate services Teh Young Khean said in a press release today.

Based on the report, prime net headline rent in the city centre stood at RM5.80 psf per month and is forecasted to remain under pressure in the next 12 months.

Overall, office markets rents across the 20 APAC cities tracked by the index recovered slightly in 2Q2019, rising 0.9% quarter-on-quarter and reversing the 0.4% decline seen previously.

On an annual basis, office rents in APAC cities were up 3.4% year-on-year, decelerating from the 6.2% rise seen last quarter.

The overall positive quarterly growth reading in 2Q2019, despite the generally soft economic climate was driven mainly by Tokyo, according to the report.

Tokyo recorded the highest q-o-q rise at 6.9% in 2Q2019 due to limited supply of prime office space. Compared with a year earlier, office rent in the Japanese capital rose by 12%.

Meanwhile, Singapore’s prime office rental grew 0.9% q-o-q on healthy net absorption, led mainly by the rapidly expanding co-working sector. On a y-o-y basis, the rent was up by 10.3%.

Looking ahead, Knight Frank maintains its muted growth expectations with rents expected to end the year flat, down from 2018’s 7.7% rise.

“With no end in sight over the trade tensions between the world’s two dominant economies, the looming prospect of a hard Brexit and the ongoing concerns in Hong Kong, we expect the rest of 2019 to remain challenging for Asia-Pacific office markets,” said Knight Frank head of research for Asia-Pacific Nicholas Holt.

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