KL office occupancy cost to grow slowest over next 5 years

KUALA LUMPUR: Kuala Lumpur’s central business district (CBD) will be among the cities that are expected to see the lowest growth in office occupancy costs per workstation globally over the next five years, said DTZ Research.

In its latest DTZ Occupier Perspective: Global Occupancy Costs — Office report, the international property consultancy also identified Singapore and Bangkok as cities that will offer occupiers the slowest growth in costs per workstation over the next five years.

According to the report, Kuala Lumpur’s office occupancy cost per workstation is expected to grow by an average 0.94% per year to US$4,180 (RM13,200) per workstation in 2016, compared with US$4,090.

“The reason for the slower growth forecast in office occupancy costs per workstation in Kuala Lumpur is mainly due to the large amount of new office supply that is scheduled to come on line in the next few years, which will put pressure on rental levels,” said associate director of forecasting and strategy research Kate Barrow.

The report is based on a survey of 124 business districts in 49 countries.

In terms of total occupancy costs per 1,000 sq m per year, DTZ also ranked Kuala Lumpur as the second cheapest place at US$257,257 per year, behind Surabaya in Indonesia (US$152,847 per 1,000 sq m per year, or US$1,680 per workstation per year).

According to DTZ Research’s Property Times Kuala Lumpur 4Q11 Report, the period saw the completion of six new office buildings which introduced 2.97 million sq ft of space, resulting in 4.2 million sq ft of total stock.

These are Menara 3 Petronas with a net lettable area (NLA) of 850,000 sq ft, Menara Prestij (NLA: 500,000 sq ft), Lot [email protected] Sentral (NLA: 450,000 sq ft) and The Horizon Phase 2 in Bangsar South (NLA: 630,000 sq ft).

Office rents have held on and prime office buildings are being leased at an average RM6.25 per sq ft, 4.7% higher from a year ago, despite vacancies increasing by 1.1% to 14.2% from a year ago.

The report pointed out that an additional 13.4 million sq ft of office space will enter the market by 2014, with 16 buildings or 11 million sq ft in the Golden Triangle.

“Looking ahead, the overall office sector forecast points towards a weakening market as oversupply is expected due to major completions scheduled in the next two years in the midst of a weakening economy,” said the Property Times KL 4Q11 Report.

The Global Occupancy Costs — Office report also pointed out that Tier II cities in India and China dominate the list of top 10 least expensive office locations, with occupiers in Chengdu seeing the highest savings as total costs per workstation per year fell 24% year-on-year (y-o-y) thanks to improved space efficiency.

“These locations [Tier II cities] are being transformed by the injection of good quality grade A space to the market, providing tenants with more choice at relatively low cost compared to elsewhere in the region,” said Barrow.

Hong Kong remained the most expensive place in the world at US$25,160 while greater China recorded the highest growth in occupancy cost per workstation, averaging a 10% yearly increase.

Beijing’s CBD saw the highest growth at 38% y-o-y to US$8,830, as rents have risen aggressively due to limited supply.

DTZ Research also presented a downside scenario in the event of a double-dip recession caused by the eurozone break-up where five countries exit the monetary union, with the short-term impact on Asia-Pacific rents expected to be greater due to their reliance on exports and greater volatility.

“However, our analysis shows that this is only a temporary decline as strong momentum in Asia-Pacific economic growth will spur a strong rebound in rents after 2013. This year could therefore offer a window of opportunity for occupiers to re-negotiate their leases,” said Barrow.

This article appeared on the Property page, The Edge Financial Daily, February 17, 2012.

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