C&C Real Property Index: Better second half for KL office sector?

The commercial property sector in the Klang Valley, having slowed in 1Q2009 in the wake of the global economic crisis from late last year, appears to be showing signs of a rebound.

A number of estate agents City & Country spoke to, confirmed that sales in the secondary office market started going up from early April to May. The recent local stock market rally has helped boost confidence among buyers, particularly among seasonal property investors. According to them, offices in the Kuala Lumpur city centre and selected offices in Mid-Valley and KL Sentral seem to be among the top picks for these potential investors.

Property Express estate agent Jerome Chou says that since the global economic meltdown hit the local economy late last year until end-1Q2009, office unit transactions of purpose-built offices in the Klang Valley had dropped about 20%. The slowdown also caused a number of his clients to look at relocating to smaller units, he adds.

When the effects of the slowdown was first felt, “everyone seemed to pull the emergency brake and start being really cautious”, says Chou. However, things got slightly better in March when enquiries started coming in, followed by some serious commitments around April, and since then, Chou has seen a slight increase of 5% in the number of office units sold, mostly in KL city.

Investors on the prowl
Interestingly, Chou says a majority of the buyers are investors rather than owner-occupiers. “Companies will normally take a longer time to  decide on relocation due to the hassles involved in moving out from one office to another. But of course, with the economic slowdown, some companies are forced to move out of their comfort zones to cut costs, be it rent or buying a smaller office unit,” he says.

“There are also increasing enquiries for offices from astute investors who have track records in buying mainly residential properties, so who knows if the wind’s direction may blow a bit towards the office market in a few months time?” adds Chou.

Nixon Paul, a real estate agent with Carey Real Estate Sdn Bhd, is similarly optimistic. He says demand for offices from January to April was slow, but things started to pick up in May.

There are indications that some are more willing to purchase than rent, says Paul. “With lower borrowing costs, this is a good time to buy. I foresee transactions and activities improving by the end of the year,” he comments.

Another real estate agent, Michael Lim from Meru Utama Realty, who focuses on the Mont’ Kiara and Sri Hartamas areas, says sales started picking up from end-March.

“Prices there fell slowly from RM580 to RM480 psf from mid-2008 and increased slightly to RM510 and RM520 psf over the first few months of this year — our sales performance has returned to the level it used to be before the global crisis hit,” he says.

Good time to buy
Lim is convinced it is now a good time to buy, given the lower office prices. He predicts that office prices in the Klang Valley, particularly for offices in prime areas in KL, will gradually increase in the next six months. He also anticipates the number of sales transacted will improve slowly.

“These are the areas where prices fluctuate frequently due to the higher number of transactions and investor interest,” says Lim.

“I believe there’s a large pool of investors out there with purchasing power and the good thing is, they are now starting to shop for potential investments with good rental returns,” he adds.

Chou says office prices in KL city are “holding well” at present due to high tenancy demand and limited supply of offices on a strata (or individual) basis. He says the majority of the existing and up-and-coming office buildings in KL, especially those with good grading and in strategic locations, are often “reserved” for bigger ticket transactions, that is, en bloc (whole office building) sales to multinational companies or for leasing purposes.

Besides that, he says, office prices have not increased much, relative to the increase in prices for condominiums in that area. Wisma UOA Centre on Jalan Pinang, one of the few strata office buildings in the vicinity of KLCC, managed to maintain prices at about RM750 psf due to high tenancy demand. Prices peaked at about RM800 psf during 3Q2008, adds Chou.

Despite its popularity, KL Sentral experienced a slight drop from mid-2008, with prices of around RM1,100 psf falling to around RM900 psf in January, says Chou. “Some companies moved out due to insufficient parking bays and the high rents,” he adds, noting that prices will also depend on the holding power of the owners, who will only sell when prices meet their expectations.

Still, KL Sentral remains one of the most sought-after office locations. “It is one of the few areas with Multimedia Super-Corridor status, offering office sales on a strata basis, on top of en bloc office tower sales and leasing offered in the area,” says Chou.

In Bangsar, he adds, Menara UOA experienced a 12% increase in office prices of between RM820 and RM1,000 psf (depending on size, layout and view) since early this year. “There is quite a high demand with regards to Bangsar’s Menara UOA, which is going to be completed in about two months. Investors like its design and a pedestrian bridge will connect the tower to the Bangsar LRT station. The situation now is that many building owners are holding on to their investments until the right prices are offered,” says Chou.

Recovery in 2H2009
Chou says overall, office prices in the Klang Valley are currently holding up well and he expects a gradual increase in 2H2009. “Though we have seen a slight recovery in prices in relation to the improved sales figures from early April, it will take some time to reach the pre-crisis levels. We foresee a gradual increase in the next six months,” he says.

“Factors such as pricing, credibility of developers, building infrastructure, design and materials used, security features, surrounding amenities, transport and the availability of parking spaces will be taken into consideration by potential buyers as part of their buying assessment,” adds Chou.

The following is a sampling of what strata-titled office owners in the Klang Valley are now asking for their properties.

Kuala Lumpur suburbs
• A partly furnished freehold unit at Plaza Sentral in KL Sentral is going for RM 7.5 million. The corner unit has a built-up of 7,200 sq ft.
• An owner is asking for RM1.29 million for a leasehold 1,500 sq ft unit at Menara UOA Bangsar on Jalan Bangsar. The corner unit is non-furnished.
• In Damansara Heights, a partly furnished freehold unit at UOA Damansara One is for sale at RM858,080. The intermediate unit has a built-up of 1,384 sq ft.
• A freehold intermediate unit at Solaris@Dutamas in Mont’Kiara is tagged at RM1.7 million. With built-up of 3,094 sq ft, the unit is unfurnished.
• An owner is asking for RM744,140 for a freehold non-furnished 1,283 sq ft corner unit at Solaris@Mont’ Kiara (Phase 2).
• At Plaza Mont’Kiara, a 1,900 sq ft unit is going for RM1.05 million at RM552.63 psf. The freehold corner unit is fully furnished.
• A leasehold corner offi ce unit at Mid Valley Boulevard is going for RM2.69 million. The partly furnished unit has a built-up of 3,900 sq ft.
• A fully furnished unit at Faber Tower within Taman Desa is going for RM962,640. With a built-up of 2,292 sq ft, the intermediate unit is freehold.

KL city centre
• Along Jalan Ampang, a freehold offi ce unit at Plaza 138 is tagged at RM819,000. With built-up of 1,260 sq ft, the corner unit is partly furnished.
• A 2,500 sq ft unit at Megan Avenue 1 off Jalan Yap Kwan Seng is on the market for RM1.3 million. The fully furnished intermediate unit is freehold.
• An owner of a corner unit at Menara Safuan, off Jalan Ampang, is asking for RM1.67 million. The 4,917 sq ft freehold unit is fully furnished.
• For a freehold, partly furnished, intermediate 1,000 sq ft unit in Menara KH (formerly known as Menara Promet) on Jalan Sultan Ismail, an owner is asking for RM450,000.
• An owner is asking RM6.6 million for a freehold offi ce unit at Wisma UOA 2, off Jalan Pinang, that is partly furnished. The corner unit has a built-up of 5,584 sq ft.
• Adjacent to Wisma UOA 2, a freehold unit at Wisma UOA Centre has a price tag of RM3.5 million. The intermediate unit is partly furnished.

Petaling Jaya, Selangor
• A leasehold offi ce at Amcorp Mall on Persiaran Barat, is going for RM316,500. The 613 sq ft intermediate unit is partly furnished.
• In Section 13, a 1,788 sq ft offi ce unit at Jaya One is priced at RM661,560. The intermediate leasehold unit is unfurnished.
• A freehold unit at Phileo Damansara 1 in Section 16 is tagged at RM676,620. The non-furnished intermediate unit comes with a built-up of 2,506 sq ft.




This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 763, July 13-19, 2009