Tough times ahead for Kuala Lumpur office market

KUALA LUMPUR: The next few years will be tough for the Kuala Lumpur office property market. Vacancy rates are expected to rise in the next two years while rentals ease by 10% to 15%, says Sarkunan Subramaniam, executive director of Knight Frank Ooi & Zaharin Sdn Bhd.

However, the lower rents may attract some business growth and even though capital values has dipped by 20% from its peak in 2008, it is not expected to slide much more, added Sarkunan when presenting the Kuala Lumpur office market performance and outlook during the 3^rd Malaysian Property Summit organized by the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector (PEPS) on Jan 26.

The services sector, the driver for the office market, is anticipated to grow its contribution from the current 55% of GDP to 70% with the liberalization of the sector. This will be aided by the expected increase in commercial activities in the oil and gas, and financial sectors. Yields are also projected to start growing, which will improve investment demand, he said.

Rents are easing mainly due to increasing supply. There was 3.18 million sq ft in total new office space supply in 2009. The trend is expected to continue in 2010.

"The new supply is putting pressure on existing buildings to review their rents and offer better leasing terms as well as upgrade their buildings in order to stay competitive.

"If all the buildings currently under construction are completed, the total supply in Kuala Lumpur will grow from 56.1 million sq ft to 71.5 million sq ft by 2013," said Sarkunan.

Decentralized office locations such as Petaling Jaya, Bangsar, and growing commercial areas like Mont Kiara and Bangsar South will add to the stiff competition in Kuala Lumpur city center, he added.