Pandemic puts downward pressure on office rents and occupancy

KUALA LUMPUR (July 14): Knight Frank Malaysia expects the Covid-19 pandemic to exert downward pressure on rental and occupancy levels in the oversupplied Klang Valley office market as the gap between supply and demand continues to widen amid weaker office demand and shrinking pool of tenants, it said in its latest Real Estate Highlights for 1H2020.

“The sense of growing uncertainty surrounding supply and demand chains will lead to [less] leasing or transactional activity as business owners and investors review or put on hold their real estate decisions,” it said.

However, it added that the recent cut in Overnight Policy Rate (OPR) to 1.75% in July 2020 is expected to have a positive impact to support property yields, releasing the upward pressure.

“[Nonetheless], the magnitude of Covid-19’s effect upon the real estate market is currently unknown and will largely depend on both the scale and longevity of the outbreak,” it said.

During the review period, the average achievable rental in KL City continued to be under pressure at RM7.25 psf per month compared to RM7.28 psf per month in 2H2019.

As for the office markets in KL Fringe and Selangor, average achievable rental rates in 1H2020 held steady at RM5.80 psf per month and RM4.32 psf per month respectively, compared to RM5.80 psf per month and RM4.31 psf per month in 2H2019. This was supported by active leasing activities and positive tenant movements, the report noted.

Moving forward, the report said working from home may be the new normal for some while social distancing measures may lead to a reversal of open office trend.

Additionally, Knight Frank Malaysia anticipates an increased demand for smaller office space. “Co-working or flexible space may be a good option for new occupiers and businesses looking to navigate in the near term before committing to a longer-term plan.”

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