City & Country: Klang Valley office market to improve in 2Q 2010

Even though the Klang Valley office market was lacklustre last year and early this year, the outlook for the sector looks promising, according to Sarkunan Subramaniam, executive director of Knight Frank Malaysia.

“The gradual worldwide economic recovery, the recent budget and New Economic Model launched by Prime Minister Datuk Seri Mohd Najib Abdul Razak will help to promote higher levels of economic investments in Malaysia,” says Sarkunan when presenting The Edge/Knight Frank Klang Valley Office Monitor for 1Q 2010.

Average rents may improve marginally at about 1% to 2% and occupancy will also improve as new businesses set up offices in the recovering economy and tenants relocate to newer or better office buildings with competitive rentals from 2Q 2010, says Sarkunan.

He also expects the March announcement by Bank Negara Malaysia on the issuance of seven more new banking licenses to generate new demand for office space in the near future.

Most enquiries for office space in 1Q 2010 were for serviced office space or fitted offices. This was due to the uncertainties over the recovering economy, the shorter set-up time frame and lower cost outlay required compared with setting up a larger office or in a bare office.

“Most of the foreign companies are adopting short-term strategies in their business plan to test the market during their start-up period, thus avoiding heavy commitment. However, businesses that have taken up temporary space in serviced offices will certainly grow to become more permanent in office buildings. This we certainly see happening in the next year,” adds Sarkunan.

For the quarter under review, the sampled overall average rental increased marginally by 0.6% to RM5.11 psf. The increase is mainly attributed to Petronas Twin Towers’ higher rentals.

An estimated 52,000 sq ft of office space at the Petronas Twin Towers was recently tenanted at RM11.50 psf by Shell while smaller space was reportedly tenanted at RM12.50psf. Additionally, Petronas Carigali HESS is expanding and sweeping up available vacant space in the building.

“Petronas Carigali is in immediate need of space for their business expansion. So, when it comes to renewal in Petronas Twin Tower Two, the management is less flexible for negotiation as they know if the space is vacated, Carigali can take it up. The rental before the crisis was RM11.50 psf and it has increased about 8.7% to RM12.50 psf,” says Sarkunan.

Offices in the Golden Triangle (GT) saw a 0.5% increase in average rental to RM5.89 psf while average rental in the Central Business District (CDB) and Damansara Heights (DH) were unchanged at RM3.93 psf and RM4.30 psf respectively from the previous quarter.

The overall average occupancy rate for Klang Valley offices is stable at 93% with only GT showing a minimal 1% decline from last quarter. Average occupancy of Grade A buildings in the GT and CBD stand unchanged at 94% and 96% respectively. Meanwhile, DH registered a 1% increase in occupancy for Grade A buildings.

With new and refurbished buildings such as The Icon and Vista Tower, both located on Jalan Tun Razak, and GTower sitting at the intersection of Jalan Tun Razak and Jalan Ampang, aggressively marketing for new tenants, older office buildings within the KL City Centre and CDB are facing stiff competition to retain tenants.

Also, Sarkunan says, decentralised office locations such as Petaling Jaya and Bangsar, and new growth areas such as Bangsar South and Mont’Kiara also add to the stiff competition in town.

Presently, occupancy at The Icon is 10%, 20% at GTower and 30% at Vista Tower.  Sarkunan expects occupancy for these three new buildings to increase in the next two quarters — The Icon to 40%, GTower to 60% and Vista Tower to 50%.

“The Intermark Mall and Doubletree Hotel completions will attract gradual demand for office space at Vista Tower by 2011 as the mall and the hotel can enhance the overall environment into a lively working ambiance,” says Sarkunan.

Vista Tower, The Intermark Mall and Doubletree Hotel are part of MGPA Asia Developments’ (formerly known as Macquarie Global Property Advisors) integrated mixed-use development.

Several multi-national companies such as software-solutions company Exact Software, DPS Consultants and Halliburton, both in the oil-and-gas industry have committed to spaces of 32,000 sq ft each in GTower. Pharmaceutical company Roche will be occupying 30,000 sq ft in Vista Tower while car-marker Mustang will take up 30,000 sq ft in The Icon. The Public Works Department will occupy the entire 410,000 sq ft of nett lettable area (NLA ) in Menara PJD. All are expected to commence operations in 2Q 2010, says Sarkunan.

Meanwhile, the Industrial and Commercial Bank of China, which was issued with commercial bank license in November 2009, will be operating from the ground floor of Wisma Equity at Jalan Ampang.

There was no completion of new buildings in 1Q 2010. Hong Kong Shanghai Bank Corp’s new headquarters in Leboh Ampang with 265,000 sq ft NLA is expected to be completed in the current quarter.

Currently, KL city has an office space supply of 42,460,200 sq ft, while KL’s city fringes has 13,500,000 sq ft. New supply of 1,874,000 sq ft is expected this year in KL city,  and 1,200,700 sq ft in the city fringes.




This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 805, May 10-16, 2010.