MCO: Commercial tenants request for rental waivers, says report

KUALA LUMPUR (May 29): Commercial tenants are requesting rental waivers following the imposition of stricter standard operating procedures for Movement Control Order MCO 3.0, according to a report by The Edge Malaysia this week.

A real estate consultant who declined to be named told the weekly that tenants have already been asking for rental reduction since last year.

“The bottom line is, everyone is still hurting,” said the consultant.

He revealed to the business publication hat office vacancy is currently “somewhere around 25% to 30%, depending on who you ask and what you look at”.

“I wouldn’t say any building has seen significant declines across the board; rather, we are hearing of individual leases being renegotiated on much better terms, in some cases, with rent coming down by 20% to 25% even.

“It needs to be stressed that these are generally older or poorly managed buildings, where the landlords have allowed themselves to be pushed into a corner. Also, with demand remaining weak, many landlords are willing to give discounts, rather than having to go out and find new tenants, especially for larger occupiers,” he said.

In its report, The Edge wrote: “Given the oversupply of commercial space — both in the office and retail segments — the situation could worsen should tenants decide to take up less space, or exit altogether. As it is, additional space has become available as tenants leave or as new buildings are completed.”

The consultant also said that “landlords have been generally at the mercy of tenants for some years now”.

“The difference now is that, while in previous years, the WFH (work from home) angle wouldn’t have been taken so seriously, it is (now) a viable alternative for many companies. And even if it were not viable, it can still be presented as a credible threat to demand for office space.”

Stanley Toh, executive director of real estate and valuation firm Laurelcap Sdn Bhd told the weekly that for “the office sector, the birth of online meeting platforms such as Zoom and Microsoft Teams has caused businesses to rethink their work space dynamics and many companies have opted to reduce their working space and save costs”.

“Meetings can be held remotely and businesses have moved towards scaling down their office space,” Toh added.

Meanwhile, both Toh and the consultant feel that the situation appears to be worse for mall operators.

“For an office, the company renting the space collects revenue from all its business operations, regardless of location. However, for retail outlets, they only collect revenue from specific locations, so the pressure is greater. Additionally, retail stores are facing significant competition from online now as well,” said the consultant.

Read the full report in this week’s The Edge Malaysia

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