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New norm in workplace putting pressure on office rentals growth

 

PETALING JAYA (July 27): Despite office rents generally remaining stable, the resizing measures taken by some companies due to Covid-19 pandemic are likely to result in downward pressure on rentals and occupancy rates in the short-term, said Nawawi Tie Leung Property Consultants.

In its 2Q2020 market report entitled “Investors remain vigilant in the midst of Economic Recovery Plan”, the consultancy firm expected the Business Continuity Plan measures such as remote working arrangement, split teams and de-densification requirements, to be the new norms in the workplace. 

“A shift in the workspace strategy could lead to redesigning of office layout as well as space planning in future. While office space is still necessary for most organisations, the resizing measures taken by some companies and reduction in office demand are likely to result in downward pressure on rentals and occupancy rates in the short-term,” Nawawi Tie Leung reckoned. 

Although the government has relaxed the containment measures since May, 2020, by allowing most non-essential sectors to operate. Majority of the businesses remained cautious in resuming operations at full capacity, given the strict standard operating procedures.

However, the movement has yet to be seen now as most of the tenancy agreements have been committed before the Movement Control Order (MCO), which was implemented on March 18, 2020. 

According to the report, office occupancy in the second quarter remained stable in Golden Triangle and KL Sentral with minimal tenant movement. The average office occupancy rate in Kuala Lumpur remained at 78.1%, with unchanged capital values and yields in the second quarter.

The monthly office rent in Golden Triangle also maintained at RM7.05 psf per month. However, KL Sentral office rents have dropped slightly from RM7.12 psf per month to RM7.2 psf per month.

“Given the current market conditions, companies’ wait-and-see attitude and desire to avoid capital expenditure, will be challenging for office landlords to fill up vacancies,” the consultant firm noted.

Meanwhile, the MCO also caused hiccups in the construction sector resulting in delayed shopping malls completion. 

“TRX’s The Exchange mall has announced delayed opening to 2022 as opposed to late 2021 planned earlier. Datum Jelatek and Setia City Mall (expansion), scheduled to complete in 2020, are still under construction,” the report showed.

In the first half of 2020, Nawawi Tie Leung said only two new malls were added to the Klang Valley retail market. These include Malakat Mall in Cyberjaya and Tropicana Gardens Mall in the suburb of Kota Damansara, with an aggregate net lettable area of 1.35 million sq ft.

The consultancy firm also observed that retail malls also not spared from the Covid-19 pandemic due to stagnant consumers’ sentiment as majority of the salary earners worried about their job security.

The unemployment rate spiked to 5% in April. The same month saw 168,300 more people unemployed compared to 610,500 recorded in March.

“Retail sales will likely record a consecutive contraction in Q2 2020 as shoppers’ traffic remains passive. However, the retail industry is only expected to recover in the third quarter with forecasted marginal growth of 2.%. Retail Group Malaysia forecasted a negative growth of 5.5% for the entirety of 2020,” Nawawi Tie Leung concluded.

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