PETALING JAYA (Jan 27): Remote and coworking space will continue to gain attention from companies, especially multinational corporations (MNCs), that are reviewing their future workplace strategy, according to Knight Frank Malaysia in a statement on Thursday (Jan 27) to announce their Real Estate Highlights (REH) 2H2021.
The real estate consultancy firm added that the take-up of space is expected in selected business sectors related to e-commerce, hygiene and healthcare, insurance and so on.
According to the office market highlights in the REH report, the pinch from the 2020 to 2021 lockdown has accelerated the adoption of remote and hybrid work arrangements among businesses.
Knight Frank Malaysia corporate services executive director Teh Young Khean said in the statement: “With the successful rollout of the national vaccination programme leading to a gradual easing of restrictions (lifting of lockdown), we saw active enquiries and gradual recovery of the office market in 3Q and 4Q2021, especially in the coworking segment.
“The remote and hybrid working models allow companies to have more space while evaluating the need to scale up or scale down their workforce (occupied space) depending on their business needs and market condition.
“Coworking space, which offers readily available fully fitted office space, grants companies the ability to meet their operational needs quickly. The flexibility of coworking space further allows corporate planners to scale up (or down) depending on their growth models. It is an attractive option which many organisations are exploring, and will be a continuing trend as businesses remain cautious on new Covid-19 variants.”
According to Knight Frank Malaysia, KL city was the initial focus area of many coworking operators, therefore the growth of this market segment in the city’s sub-localities is well-established.
Some companies, especially MNCs, are evaluating their future workplace strategy as physical office space remains important for collaboration to maintain and boost productivity levels among employees.
Overall vacancy remains elevated at 12.8%, but office rents are likely to have bottomed out, thanks to improving business sentiments and a gradual and more sustainable return to workplaces and hybrid working arrangements.
Meanwhile, the trend of coworking space is starting to be increasingly prominent in other states in the country.
Knight Frank Johor director Debbie Choy said: “More companies are exploring coworking space, a trend gaining popularity in Johor Bahru as it offers flexibility to scale business operations up or down during uncertain times. We have also noticed an increase in the occupancy of office space by coworking space operators in Johor Bahru in 2H2021. Common Ground made their debut into Johor’s market by commencing their operations at Medini 6.”
Knight Frank Malaysia (Penang branch) executive director Mark Saw said: “The Covid-19 pandemic has changed how some businesses and hotels operate and re-strategise to stay afloat with some companies adopting a hybrid working model for now and the future by transforming their business space into coworking space to promote the flexibility of work.
Saw added: “For example, M-Summit 191 is among the hotels that took the initiative to change some of their rooms to coworking space. In tandem with Penang Vision 2030 to be a smart city in promoting a high-tech ecosystem, coworking space will continue and remain attractive in Penang as it offers flexibility, a modern work environment and low set-up cost and will become a choice to MNCs and SMEs to start their businesses. Limited supply and high demand of good grade offices in Penang should also cater to the demand. Currently, notable coworking spaces in Penang include Regus, Spaces Beach Street, Common Ground, Settlement, and Masco.”
Knight Frank Sabah executive director Alexel Chen said: “The market for coworking space in Kota Kinabalu is still in its infancy stage and has only observed marginal growth in recent years with the entry of smaller-scale local operators."
Chen added: “The majority of the office-based businesses in Kota Kinabalu consist of SMEs, along with a smaller proportion of corporates. In general, companies have been observed to have a preference for conventional office space due to the fixed working hours that necessitates a fixed volume of office space, in contrast to the flexibility coworking space offers.
“In addition to that, mass preferences are still skewed towards shop offices with cheaper rentals. Based on observation, coworking space providers in Kota Kinabalu generally cater to individuals and smaller groups who are relatively cost-conscious such as freelancers, start-ups, entrepreneurs and agencies.”
Tenant-led office market
Moving forward, the outlook of the Klang Valley office market continues to remain tenant-led, especially in KL city, where the rental rates and occupancy levels of office buildings are experiencing downward pressure.
Flight to quality continues in the tenant-led office market, with some MNCs taking advantage of the lower, competitive rentals to move into high-quality CBD office space. According to the Asia-Pacific Prime Office Rental Index for 4Q2021, there was a 0.3% quarter-on-quarter increase, the first uptick of rent rise since 3Q2019 with the overall index down 1.8% year-on-year.
Corporates and companies are finding a balance between driving growth while maintaining operational and cost-efficiency to surpass the growing supply-demand mismatch in the office market.
Knight Frank Malaysia (Penang branch)’s Saw commented: “Due to limited supply of better grade office space in Penang, the office market outlook for the state should remain optimistic with stable rents and occupancy rates.”
He said: “As of 3Q2021, the existing supply of privately-owned offices in Penang Island increased 3.3% to approximately 7.3 million sq ft on the quarter while on the mainland, supply remained unchanged at 1.6 million sq ft with average occupancy rates at circa 85% and 57% respectively, according to NAPIC.
“Generally, there is growing demand for new office buildings equipped with better specifications as well as those with Malaysia Status Company (MSC) accredited status and global business services (GBS). Penang is home to several MSC companies and with the state government through Penang Development Corporation (PDC) taking a proactive initiative to meet growing demand of the GBS industry with the two existing GBS buildings, namely GBS @ Mayang and GBS @ Mahsuri, recording high occupancy rates — there are plans to set up two more GBS centres, one to be located near the existing GBS @ Mayang, and the other in the Bayan Lepas industrial area.”
Knight Frank Johor’s Choy said: “The asking rents of office space in Johor Bahru have remained fairly stable when comparing 1H2021 and 2H2021. Like many other sectors, office landlords are eagerly awaiting the relaxation of the borders between Malaysia and Singapore to attract newer tenant pools. Whilst the gross asking rentals are anticipated to remain stable, rental packages to incorporate and tailor to the needs of potential tenants are becoming flexible. With new office completions expected in 2022, the features and quality of these office towers apart from their locations will be among the key factors that may drive product differentiation.”
Knight Frank Sabah’s Chen shared: “The asking rentals of privately-owned purpose-built office space have held constant in recent years, although the majority of landlords were observed to have granted rental incentives during the height of the pandemic. As of now, these arrangements have generally ceased, particularly as the state entered into the final phase of the National Recovery Plan in late 2021, whereby office operations were permitted to resume at full capacity.
“On a positive note, increasing interest from MNCs seeking to expand their footprint in Kota Kinabalu may translate into an increase in occupancy levels. However, in the short-term, this is unlikely to significantly influence the current market landscape as a translation of such interests normally involves lengthy procedures with a strict set of office space requirements to be fulfilled.”