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Monday, September 28, 2009

Office rentals in KL stabilising

PETALING JAYA: The soft office space rentals and occupancies in Kuala Lumpur are expected to stabilise in the next six months if the economic and business outlook continues to improve, say property consultants.

The city’s office market has not been spared from the effects of the global financial crisis, with easing demand pushing down rental and occupancy rates.

According to Knight Frank Research’s latest Real Estate Highlights report, absorption of office space is generally slow, except for buildings which are for owners’ occupation, including Lot C, KLCC (to be occupied by Petronas) and HSBC Annexe (part of the expansion of the existing HSBC headquarters).

Office occupancies started to decline in the first half of the year due to weaker demand as some companies withheld their expansion plans.

Overall, the average occupancy in Kuala Lumpur in the first half-year was 83% (second half of 2008: 85%), with prime offices in Kuala Lumpur city centre having done better with an average occupancy rate of 97% (second half of 2008: 97%).

Prime offices are still enjoying high occupancies due to the limited new supply of prime office space and the remaining terms of earlier tenancies locked in.

Occupancy for secondary office buildings in Kuala Lumpur city centre has shown an improvement as some companies remain interested in relocating to secondary offices as a cost-saving measure amid the economic slowdown.

The cumulative supply of purpose-built office space in Kuala Lumpur city centre was recorded at 41.3 million sq ft during the first half of this year while the cumulative supply in “decentralised”, or non-prime, areas of Kuala Lumpur stood at 13.5 million sq ft.

During the period, there were no significant investment sales for office property in Kuala Lumpur.

However, several sales were noted in decentralised Kuala Lumpur and Petaling Jaya, which included Wisma Chase Perdana in Damansara Heights, Wisma Dijaya in Damansara Utama and Wisma Glomac 3 in Kelana Jaya.

The report further said that several new office buildings currently under construction in Kuala Lumpur would add some 1.4 million sq ft in new office space in the city by year-end.

The increased supply will translate into more choices for tenants and a more competitive market for property owners.

“Office rentals in Kuala Lumpur will remain one of the lowest in Asia and this is an advantage in attracting foreign companies seeking space for their business expansion in the region,” the report said.

The new supply coming on-stream include GTower, The Icon Jalan Tun Razak and Menara PJD, all located along Jalan Tun Razak.

In decentralised Kuala Lumpur, the incoming supply in the second half include Quill Building 7, MIDA headquarters, and the head office of the Companies Commission of Malaysia.

DTZ Research head of South-East Asia, Chua Chor Hoon, said office property value in Kuala Lumpur had eased about 12% year-on-year but the drop was not as steep as in other regional markets.

“There are not many sellers, so there is no distressed sale. The average capital value is RM790 per sq ft,” he said in a recent report on the Kuala Lumpur office market.

Chua said most of the sales were transacted by local buyers while foreign investors were staying on the sidelines in search of higher yields.

YY Lau Property Solutions chief executive officer Y.Y. Lau said that on the whole, there was an oversupply of office space in the Klang Valley although certain popular locations were facing shortages.

She said most of the space was taken up by existing companies that were either consolidating or expanding their operations.

“To cut operation costs, some tenants have already moved to less expensive locations.

“Office space that may not be of Grade A standard is still registering good demand as long as it is well maintained and the rentals reasonable,” Lau said.

By The Star (by Angie Ng)