Challenging year for office property owners

KUALA LUMPUR (Jan 17): This year will be a challenging year for office building owners due to an oversupply within the Klang Valley, said Danny SK Yeo, deputy managing director of CH Williams Talhar & Wong.

During his office market performance and outlook presentation at the fifth Malaysian Property Summit 2012, Yeo said office space supply in the Klang Valley grew 9.7% or 7.8 million sq ft in 2011 while 2012 is expected to see a supply growth of 9.8% or 8.6 million sq ft. However, supply will fall later with estimated growth of 5.1% in 2013 and only 2% in 2014.

"The local office market would be challenging for office owners. However, tenants will be like kids in a candy store," he said, adding that they will be capitalising on the present and forecast state of the market when negotiating leasing terms.

He also said tenants currently prefer to rent offices within integrated developments or office buildings within prime locations.

In Kuala Lumpur, occupancy rate improved by 1.01 million sq ft from year 2010 to a total of 3.67 million sq ft as at the end of 2011 while occupancy rates are expected to fall in 2012 to below 85% amid the threat of a global economic slowdown and the impending supply of office space, rentals will be under pressure as owners compete for tenants and renewals.

Yeo said the Kuala Lumpur Central Area (KLCA) Prime Office would continue to perform best which includes the office buildings surrounding KLCC. Also, green buildings will do better in terms of marketability and Multimedia Super Corridor-certified buildings will continue to grow in tandem with the Malaysian IT industry.

He added that prime rentals will remain stable at RM6 to RM9.50 per sq ft. Yield is expected to be compressed further but will however hover within the range of 6% to 6.25% for investment grade properties. Overall prices and rents however will come down gradually.

The Malaysia Property Summit was organised by the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia.