KL office market remains resilient in second quarter

KUALA LUMPUR: An overall improvement in occupancy rates of Kuala Lumpur’s existing prime Grade A buildings in the second quarter of 2012 (2Q12) indicates a resilient demand for good quality and well-managed office buildings in the Klang Valley, according to Cushman and Wakefield’s 2Q12 Kuala Lumpur Marketbeat Office Snapshot research report. This included stable rentals for Grade A office buildings.

However, it warned that an influx of new supply totalling up to almost four million sq ft in KL’s central business district (CBD) and the fringes of the city in the next one year may cause a shift in market demand. According to the report, average effective net gross rate edged up marginally to RM7.48 per sq ft from RM7.46 in 1Q while the average vacancy rate improved slightly to 15.4% in 2Q12 from 18.4% in 1Q.

The economic growth in Malaysia, while still healthy, has shown a slight drop. The economy grew 4.7% in 1Q12 compared with 5.2% in the previous quarter, with domestic demand continuing to drive and sustain the country’s growth. Slightly lower inflation rates were recorded while the current unemployment rate hovered around 3%.

Despite the positive 2Q12 report, landlords are bracing themselves for increased competition by adopting a cautious strategy in adjusting the rental rates to retain their existing tenants. The oversupply in office space may force landlords of new buildings to offer more favourable leasing terms to attract potential tenants.

Cushman and Wakefield expects a tenants’ market with effects to be felt in the second half of the year. The office market in KL’s CBD is set to rise by 1.96 million sq ft while an additional 1.9 million sq ft of new office space will be completed in the fringes of the city by early 2013.

The slew of new entrants includes KL’s Integra Tower @ The Intermark, Menara Darussalam, Menara Binjai, Menara Felda, Lot A and Lot G (office towers 1 and 2) KL Sentral and Petaling Jaya’s Point 92 Damansara Perdana and Towers 4 and 5 of Jaya 33 Cybercentre. Only Menara Felda, KL Sentral Lot A and 648 Sentral have confirmed major tenants. They are Felda, CIMB Investment Bank and Shell Malaysia.

The largest project in KL’s CBD area, Integra Tower, will offer some 777,000 sq ft while Lot A at KL Sentral will provide an additional 600,000 sq ft of office space to the fringes of KL city. Cushman and Wakefield saw only one significant sale transaction in 2Q12.

Tradewinds Corp Bhd purchased 439,800 sq ft of office space in Menara Tun Razak 2 for RM510,000. Other lease transactions in 2Q were SBM Malaysia Sdn Bhd which took up 17,000 sq ft in KL Sentral Park while Alcatel-Lucent Sdn Bhd rented 16,000 sq ft of office space in The Gardens South Tower. CEO Suite Sdn Bhd took up 13,000 sq ft in Menara Maxis and Axiata Group Bhd leased 13,000 sq ft in Quill 7, KL Sentral.

This article appeared in The Edge Financial Daily on August 10, 2012.