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Office markets in KL and Selangor expected to remain subdued

PETALING JAYA (Aug 10): The KL fringe and Selangor office markets are expected to remain subdued while KL city is expected to face downward pressure underpinned by persistent low oil prices, said property consultancy firm Knight Frank Malaysia in its “Real Estate Insights research report for 1H2016”.

“Amid widening mismatch between supply and demand, office vacancies are expected to trend upwards due to a strong supply pipeline and lacklustre absorption as more firms decrease their workforce, freeze hiring or consolidate business operations.

Owners or landlords of newly completed office buildings which have not been pre-let or have yet to achieve significant occupancies may offer more competitive rental package to secure tenants while those older and secondary office buildings are expected to be more flexible in negotiations to retain existing tenants,” it said.

However, well-located, good grade and dual compliant office spaces are expected to remain resilient, maintaining healthy occupancy levels and attractive rental rates due to sustained demand and limited supply of good grade space, added the report.

Owing to the depreciation of the local currency, more multinational companies (MNCs) from the marine and offshore (M&O) sector may see KL as an attractive proposition, said the report.

“Besides offering the lowest prime office rental amongst regional cities, MNCs relocating their regional offices here stand to benefit from lower operational costs in terms of rentals, accommodation and staffing,” it said.

The on-going Sungai Buloh-Kajang Mass Rapid Transit (MRT) line which is due for completion by end-2016 is also expected to benefit decentralised office locations along its route, added the report.

Meanwhile, according to Knight Frank’s report, the cumulative supply of purpose built office space in KL and Selangor stood at about 92.7 million sq ft as of 1H2016.

“The completion of approximately 180,000 sq ft of space in Selangor brought its cumulative supply to 17.9 million sq ft while in KL City and KL Fringe, with zero completion, the cumulative supply remained unchanged at 51 million sq ft and 23.8 million, respectively.

“By 2H2016, some 5.8 million sq ft of space is expected on-stream from buildings that include Public Mutual Tower and JKG Tower in KL City; Menara Ken @ TTDI and Menara Hong Leong at Damansara City (Tower A); and Iconic Tower in Block N and Signature Tower in Block H at Empire City in Selangor,” it said.

The report added that in 1H2016, the overall average achieved rental rates in both KL City and KL Fringe dipped marginally to RM6.13 per sq ft and RM5.72 per sq ft, respectively. Similarly, the overall average achieved rental rate in Selangor declined marginally to RM4.16 per sq ft.

Knight Frank Malaysia also noted that despite further completions and weaker business sentiment, rentals of Grade A offices in Kuala Lumpur continue to hold, ranging from RM7 to RM13 per sq ft per month.

Several notable office occupier movements during 1H2016 include McDermott Asia Pacific (APAC) relocating its regional office to Menara Hap Seng 2; Infoblox opened its first Asian research and development facility in Uptown 1, Damansara Uptown; Miliman Inc opened its 12th APAC office in 1 Sentral, KL Sentral; CE+T Group opened its APAC office in Plaza Sentral and Hytera Communications opened its Malaysian office at Tower A of Vertical Business Suites in Bangsar South.

Recently, the Ministry of Federal Territories announced the tightening of approval for the construction of new office buildings in Kuala Lumpur, with the exception of corporate buildings constructed for businesses’ own use, in order to control escalating supply and stabilise the office market.

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