Rising supply in KL fringe challenges CBD offices

KUALA LUMPUR: The Kuala Lumpur central business district (CBD) office submarket is expected to face “stiff competition” from roughly four million sq ft of new inventory in areas on the fringe of Kuala Lumpur — coming onstream by year-end, said real estate services company YY Property Solutions Sdn Bhd.

In its 4Q12 Marketbeat KL Office Snapshot report, YY Property noted seven significant projects due for completion throughout this year, adding to an existing stock of 72.28 million sq ft and possibly affecting overall vacancies which stand at 22.7% as at 4Q.

“With improved infrastructure and good connectivity, potential tenants may take the opportunity to relocate or expand out of KL’s CBD,” it said.

Over at KL Sentral, three buildings poised for completion in 1Q are Menara Shell or 348 Sentral, Nu Tower 1 and 2, and CIMB Building, which will add 1.9 million sq ft of office space.

Menara Shell and CIMB Building have already secured anchor tenants — their namesake companies Shell Malaysiaand CIMB Investment Bank Bhd.

Meanwhile, Glomac Damansara’s Tower D (255,000 sq ft) along Jalan Damansara and BellworthDevelopment Sdn Bhd’s Menara LGB (414,000 sq ft) at Taman Tun Dr Ismail are poised for completion in 2Q, with the latter’s anchor tenant being the developer’s parent LGB Group.

In 4Q, Bank Rakyat Twin Towers (one million sq ft) off Jalan Travers is expected to be completed and tenanted mainly by Bank Kerjasama Rakyat Bhd.

As at 4Q12, vacancy at good quality offices in the KL fringe remained at 3%, while rents inched up to RM6.09 psf from RM5.84 psf in 3Q12.

During the last quarter, Grade A buildings in the CBD managed to raise net effective gross rents to RM7.56 psf from RM7.45 psf in 3Q12, despite higher vacancies.

“It is also evident that all the four new buildings, ie Menara Felda,  Menara Darussalam, Menara Binjai, and Glomac Damansara completed during the second half of 2012 witha total supply of 1.84 million sq ft have yet to achieve significant occupancy rate. As a result, average vacancy rates, especially in the KL CBD market increased by 6.1% in 4Q to record 25.6%,” YY Property said.

The newly completed Integra Tower (777,000 sq ft) at Jalan Tun Razak and Point 92 at Damansara Perdana (158,000 sq ft) are also expected to create stiffer competition among other new office towers, it added.

Over at the decentralised areas and Cyberjaya, prices stayed at RM4.58 psf and RM4.60 psf, despite vacancies in the former swelling to 6% from 1.5% while the latter recording 10% vacancies, up from 3.6%.

“The decentralised area and Cyberjaya markets are anticipated to remain stable as there will be limited Grade A new buildings completed in these two locations in the medium term,” it said.

In 2Q, Towers 4 and 5 of Jaya 33 Cybercentre at Petaling Jaya are expected to be completed, adding 265,000 sq ft of floor area each, while over at Mutiara Damansara, Menara TSR will upon completion add 150,000 sq ft of space.

This article first appeared in The Edge Financial Daily, on February 8, 2013.