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Thursday, July 29, 2010

Outlook for KL office market remains soft

PETALING JAYA: The Kuala Lumpur office market is expected to remain soft for at least the next six months, with average rental rates facing downward pressure, including for some prime office buildings, property consultants said.

DTZ Nawawi Tie Leung executive director Brian Koh said with the large incoming supply of new office space, especially in the next two years, office occupancy and rental would come under pressure until at least 2012.

“It will take sometime for the market to recover. We expect monthly average rentals in the prime office areas to ease from RM6 per sq ft now to around RM5.80 in the coming months,” he told StarBiz.

DTZ Nawawi Tie Leung, in its latest DTZ Property Times Kuala Lumpur report, said the local office market had increasingly become a tenants’ market as supply would continue to surpass demand.

“This is due to a significant increase in incoming supply later this year and over the next few years. That will allow tenants to negotiate for cheaper rates upon renewal and when signing for new leases,” it added.

By the second half of the year, another 2.06 million sq ft of new office space is scheduled to come onstream.

Between 2010 and 2014, about 14.9 million sq ft of space is in the pipeline, with about seven million sq ft scheduled for completion in 2012.

“With the significant supply of new office space coming on-stream, competition is expected to intensify further among new office buildings to secure tenants, and office rents are expected to see further downward pressure,” the report said.

It added that the outlook for the sector remained cautious, “until a more convincing and firmer economic performance is achieved”.

Although the overall occupancy rate of office buildings in Kuala Lumpur rose from 87.2% in the first quarter of this year (Q1’10) to 87.9% in Q2’10 due to a lack of new supply, the average monthly rental of office space fell from RM6.02 per sq ft (psf) in Q1’10 to RM6.00 in Q2’10.

YY Property Solutions, in association with Cushman & Wakefield, in its latest Kuala Lumpur Office Marketbeat report, said although there were more active enquiries in Q2’10 compared with the previous quarters, “the pace of demand for office space has yet to match the improved economic environment.”

“It is still largely a tenants’ market with landlords offering better terms to tenants under growing competition from existing and newly completed office buildings,” it added.

Lauding Bank Negara’s issuance of five new commercial banking licenses as “giving a boost to the office market”, it said demand for office space was essentially driven by employment generation in the services sector.

The report pointed out that the capital value of real estate in the investment market was expected to remain stable this year.

CB Richard Ellis Sdn Bhd executive director Paul Khong concurs that the market is very much a tenants’ market and rental rates are very competitive.

“Landlords need to fight harder to attract tenants and various financial incentives are now thrown in to package a deal,” he said.

However, Khong is more optimistic in his outlook of the office market and believes rentals will be stable “with some nominal increases for the rest of 2010 while occupancy rates will continue to improve slightly further.”

“Over the next six months, we expect to see further activities in the office market and more relocation of tenants to newer buildings,” he added. Khong noted that the market held on rather well in the first half of the year with areas like KL Sentral, Jalan Bangsar, Mid Valley, Damansara Heights, Petaling Jaya and Mutiara Damansara, recording a higher occupancy rate.

Monthly rentals for Grade A office space in KL’s city centre are within the range of RM6.50 to RM7 psf inclusive of service charges, at RM7.50 to RM8 psf in KLSentral, and RM5 to RM5.50 psf in Bangsar and Damansara Heights. Average office rental in Petaling Jaya is around RM4.50 psf.

By The Star (by Angie Ng)

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