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Monday, April 21, 2008

Call for review of office space freeze in KL

Most quality buildings in Kuala Lumpur are recording tenancy in excess of 90% while rental rates have climbed to between RM6 and RM9 per sq ft

The decade old “freeze” on high-rise office buildings in Kuala Lumpur's inner city needs to be reviewed to allow for the development of more quality office buildings to keep up with the growing demand, property consultants said.

They concurred that a review was timely as there was a lack of Grade A office buildings in the city with most quality buildings recording tenancy in excess of 90% while rental rates have also climbed to between RM6 and RM9 per sq ft.

The KL City Hall (DBKL) had introduced a freeze of new office buildings of more than 20 stories in the Golden Triangle following a huge surplus of office space after the regional financial crisis hit the country's shores in 1997.

By around 2001, about 28% of the available inventory, or about 13.5 million sq ft of office space, was left unoccupied.

According to Regroup Associates executive chairman Christopher Boyd, the situation had changed in the past 12 months and a company wanting a Golden Triangle location in a Grade A building would have difficulty finding space.

“Major corporations which might otherwise have located in KL city appear to have been squeezed out by a combination of planning restrictions and traffic congestion.

“In many cases, KL's loss has been Petaling Jaya's gain, and this does not seem consistent with DBKL's stated objective to enhance KL's position as an international commercial and financial centre,” Boyd said.

Regroup's latest survey revealed that Grade A office buildings in KL were now 94.5% occupied with very little space available to accommodate large companies.

“Rental rates are also approaching record levels with the better buildings commanding over RM7 per sq ft.

“New office supply may not meet demand over the next three years and rents are likely to continue to rise. If this scenario does not improve, Malaysia is in danger of losing its competitive edge to other regional cities,” he cautioned.

Boyd urged the City Hall to review the current position and issue clear and unequivocal guidelines on new office building approvals which allow for moderate growth.

“The service sector is growing at 9.7% a year, and 200,000 new graduates emerge annually to find employment. It would be ironic if Malaysia lost out in attracting multinational regional operations simply through having insufficient quality office space,” he added.

Zerin Properties head of investments Francis Quah said the freeze should be reviewed in view of the shortage of quality office space in the city.

“The City Hall has not imposed a complete ban on new office buildings but is reviewing new project applications on a case-by-case basis. There are still new projects underway.

“While the freeze has resulted in a shortage of quality office space in Kuala Lumpur, it also has its good points. The close watch on new developments allows for regulation and planning,” he said.

Quah said there was a lot of excitement in the market with a growing foreign and local interest in the local office market.

“We see a lot of growth potential and look forward to seeing our market grow and mature to the likes of the other neighbouring cities,” he added.

Echoing Quah's views, Knight Frank Ooi & Zaharin Sdn Bhd managing director Eric Ooi said the so-called freeze had indeed left a good impact in the industry “as it helps to monitor the market where only feasible projects are approved”.

The driving forces for the office market include the country's strong economic growth of 6.3% last year, robust growth of the services sector and a growing demand for prime office space by companies in the oil and gas sector, financial institutions and information technology companies.

“Kuala Lumpur's office market will continue to see good potential in view of its skilled workforce, lower cost of living and modern infrastructure,” Ooi said.

The City Hall head of urban planning department Mahadi Ngah said the City Hall had since 2005 relaxed the ruling that the development of new office building would only be allowed if it was meant for own occupancy and now allow up to 50% of the space to be sold or leased out to other parties.

“There is no blanket freeze on new office buildings now but we look at the application on a case by case basis. Quality projects that are located in areas zoned for office buildings and have pent up demand will be allowed.”

He said the KL Draft Local Plan, which is to be released next month, would spell out the guidelines on the type of office buildings and location allowed, and other considerations, including the plot ratio and density.

By The Star (by Angie Ng)

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