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Office market remains stable
The Klang Valley office market is expected to remain fairly stable until December.
The near-term outlook is supported by strong economic indicators such as the government’s Economic Transformation Programme which has identified 131 Entry Point Projects to generate business and job opportunities.
This will in turn boost demand for office space, says Sarkunan Subramaniam, executive director of Knight Frank Malaysia, when presenting The Edge/Knight Frank Klang Valley Office Monitor for 2Q 2010.
“Despite a slight moderation in the global growth momentum, the robust domestic economic activity is expected to support the local economy,” says Sarkunan.
Generally, the office rental market remained stable in 3Q 2010 despite new completions and newly refurbished buildings in good locations.
“The effects will only likely be seen later as existing tenancies that have been locked in earlier will take time to expire,” says Sarkunan.
The overall average office rental rate for Kuala Lumpur of RM5.09psf in 3Q 2010 was unchanged from the previous quarter, with average rent in the Golden Triangle (GT) at RM5.84 psf, the CBD (Central Business District) at RM3.93 psf and Damnsara Heights (DH) at RM4.30psf.
However, while office rents are projected to remain fairly stable, they may come under further pressure in the near future due to new completions of 11.6 million sq ft coming onstream by 2012.
“The new supply poised to come into the market represents a sizeable 20% of the total existing stock,” says Sarkunan.
The current office supply in Kuala Lumpur city amounts to 43.2 million sq ft, with another 14.7 million sq ft on the city’s fringes. Under construction are 7.5 million sq ft of office space in Kuala Lumpur city and 6.1 million sq ft on the fringes.
Meanwhile, the proposed development of the RM5 billion, 100-storey Warisan Merdeka located within the enclave of Stadium Merdeka has stirred much debate.
The project was announced in Budget 2011, tabled by Prime Minister Datuk Seri Najib Tun Razak on Oct 15.
To be undertaken by Permodalan Nasional Berhad (PNB), construction is expected to start next year and scheduled to be completed by 2015. The project will offer about 2.2 million sq ft of net lettable area (NLA).
“While I believe it will impact the market in some way, it is hard to predict the market condition in 2015 with so much global economic uncertainty at present,” says Sarkunan.
However, he sees far-reaching implications for the project and believes the area, which has always been overlooked, will be transformed into a business hub.
“This would mean a lot for real estate values in that area, especially for projects nearby, including the proposed UDA Holdings Bhd Pudu jail project,” says Sarkunan.
In his opinion, Warisan Merdeka would probably end up being occupied mostly by government or government-related agencies.
Addressing the criticism about Warisan Merdeka, Sarkunan cities Petronas Twin Towers as an example. “When they were being constructed, people were saying they would kill the market with that large amount of office space. But it did not,” he argues.
Based on the office monitor, the overall average occupancy for the quarter under review was unchanged from 2Q 2010 at 92%. The average occupancy for offices in the CBD and DH remained at 95% and 93% respectively. Only the GT showed a very marginal increase of 0.1% from the last quarter to 92.9%.
However, Sarkunan notes a slight improvement in occupancy rates for new office buildings in 3Q 2010, such as The Icon in Jalan Tun Razak, where Samsung took up about 30,000 sq ft of NLA. He estimates current occupancies of new projects such as GTower — a green office tower —and newly refurbished buildings, such as Vista Tower to be between 30% and 60%. GTower, Vista Tower and The Icon are all located in the Jalan Ampang/Jalan Tun Razak locality.
“It would appear that GTower is filing up faster but this is likely due to factors which include its Multimedia Supercorridor Cybercentre (MSC) status, the Building and Construction Authority of Singapore (BCA)’s Green Mark Gold accreditation, and its smaller office space configuration which attracts a wider tenant market,” he says.
A rise in office transactions and enquires was noted in 3Q 2010, which he attributes to dipping prices and attractive yields. Prices have dipped 10% to 20% in 3Q and yields are at around 7%, up from the previous 6.5%. “This is because supply exceeds demand at the moment,” he says. He expects prices to stabilise as the economy improves.
Among the notable transactions in 3Q 2010 was the acquisition of the 38-storey Menara Pan Global in Jalan Puncak by property developer and manager Kwong Hing Group for an estimated RM160 million. The building has a built-up of 400,000 sq ft, with nine levels of hotel suites and 420 parking bays.
Two properties were sold to foreign players — the en bloc sale of 1 Mont ‘Kiara (1MK) for RM333 million by Aseana Properties Ltd to a real estate fund management outfit affiliated with Hong Kong’s Cheung Kong Group, and a block sale of 31 office units of The Crest @ Jalan Sultan Ismail to a Singaporean investor for about RM80 million. The sale of 1MK is understood to be for the retail mall with NLA of 250,000 sq ft, 185,000 sq ft of office space and over 1,000 parking bays.
Meanwhile, Amanahraya Real Estate Investment Trust has proposed to acquire Kompleks PKNS (NLA 502,958 sq ft), Menara PKNS (NLA 244,316 sq ft) and SACC Mall (NLA 185,178 sq ft) in Shah Alam for RM270 million from Perbadanan Kemajuan Negeri Selangor (PKNS).
AmFirst REIT has also proposed to acquire a plot of land with a five-storey office building (NLA of 112,151 sq ft) in Cyberjaya from FBSM Holdings Bhd for RM51.5 million.
On the development front, S P Setia Bhd is partnering Kuala Lumpur City Hall to develop KL Eco City, a green mixed development comprising office towers, signature offices and condominiums, on a 9.7 ha leasehold tract in Kampung Haji Abdullah Hukum.
Mah Sing Group Bhd has announced its biggest commercial development, Icon City, on a 7.93 ha tract in SS8, Sungei Way,. It comprises serviced apartments, hotel, office towers, SoHo blocks and shoplots.
KLCC Property Holdings Bhd, in a 50:50 joint venture with the Qatari Investment Authority, has proposed to build two additional towers of between 50 and 70 storeys next to the Petronas Twin Towers. The two blocks, comprising an office tower and a hotel with two million sq ft of commercial space, will sit on a four-storey retail podium that will be integrated with the existing Suria KLCC.
Meanwhile, UDA Holdings is in talks with a few joint-venture partners to develop the former Pudu Jail site and the tract next to it, a combined 22-acre. Estimated to cost about RM5 billion, it will comprise serviced offices, retail outlets, a hotel and residential units.
Tradewinds Corporation Bhd plans to construct a new 40-storey office block with a NLA of 296,000 sq ft next to Menara Tun Razak. Plans are also underway to refurbish the 29-year–old Menara Tun Razak at an estimated cost of RM450 million.
The quarter under review also saw the completion and opening of BSC Office Suites II in Bangsar with a NLA of 162,000 sq ft. The average rental rate is RM5.50psf and it is 40% occupied.
Construction of Integra Tower, located within The Intermark project in Jalan Tun Razak, began in 3Q 2010. The Intermark is a redevelopment project by Macquarie Global Property Advisers (MPGA). MPGA acquired City Square Shopping Centre, Crown Princess Hotel and Empire Tower for RM680 million in 2007 and invested more than RM1 billion for the redevelopment.
This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 830, Nov 1-7, 2010
