Knight Frank Malaysia: Office occupancy rate, rental likely to continue down trend in 2018

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UALA LUMPUR (Jan 23): The office occupancy rate and average rental in Kuala Lumpur city centre, Kuala Lumpur fringe and Selangor are expected to continue their down trend in 2018, said Knight Frank Malaysia Sdn Bhd managing director Sarkunan Subramaniam.  

“We have gone into the net absorption period of all grades [of] purpose-built office in Kuala Lumpur and Selangor. Landlords have to prepare for the competitive environment,” said Sarkunan in his session titled “Klang Valley Office Market Performance and Outlook” in the 11th Malaysian Property Summit 2018 held today at the Sime Darby Convention Center.

The summit is organised by the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia (PEPS) annually.

EdgeProp.my is the media partner of the event.

Commenting on the 2017 office market performance, Sarkunan said it was challenging due to the oil and gas industry right-sizing and more incoming supply.

“In 2017, we entered negative absorption of office in Kuala Lumpur city at -0.24 million sq ft for the first time since the financial crisis in 1997/98,” Sarkunan noted.

Despite expecting a similar performance for the office market this year, he pointed out a few catalysts that may help boost the market, such as the booming of e-commerce and the completion of the first MRT line.

“The e-commerce industry is on an expansion mode. We must thank this industry for being the saviour for the market last year. We also saw the MRT line 1 completed last year. This is significant for the future because it will bring people back to the city, hence integrated transit-oriented developments will be the bright spot in the office market,” he shared.

Sarkunan added that integrated transit-oriented developments will gain more interest from tenants than standalone offices in the future due to the work and lifestyle change. “People really want to take up space in the centres and don’t really want to go to places that are too far away. KL Sentral is the success story, and I believe the next one will be Damansara Heights.”

Similar to KL Sentral, Damansara Heights was designed to be another transit-oriented development.

However, attention was trained on KL Sentral over the past 20 years.

“It is time to look at the forgotten Damansara Heights now because KL Sentral is completed without any more plots left,” he elaborated.

On the overall outlook of the office market in 2018, Sarkunan believes the market will stay stagnant, if not worsen, due to a total of 7.6 million sq ft of office space entering the current oversupplied market in 2018 and 1.2 million sq ft in 2019.

“It will likely be another tenant's market year. Landlords be prepared to provide fit out contribution, more complimentary car parking bays and even provide rental free during the renewal period,” said Sarkunan.

He also summarised that there will be five office market trends moving forward: innovative solution, integrated/transit-oriented development, ICT/call centres/shared services/business process outsourcing, Hawthorne effect and co-working space.