PETALING JAYA (Dec 3): Kuala Lumpur’s office rents recorded a 2.1% q-o-q increase in the third quarter of 2019, according to real estate consultancy Knight Frank’s Asia-Pacific Prime Office Rental Index.

Nevertheless, Knight Frank Malaysia expects KL office rental to decline in the future as the 2.1% rise was mainly due to the addition of two new office towers in the TRX financial district in the Malaysian capital, namely The Exchange 106 and Menara Prudential, which held premium rents. On a yearly basis, the index for KL climbed 1.5% in 3Q2019.

“Malaysia’s tallest tower and the capital city’s latest iconic skyscraper, The Exchange 106 @ Tun Razak Exchange (TRX), was awarded the Certificate of Completion and Compliance (CCC) for the lower zone of the building in 3Q2019. The building, which is reported to have achieved circa 20% pre-committed occupancy, offers good quality and high specification space and hence, command higher rental rates,” Knight Frank Malaysia executive director of corporate services Teh Young Khean said in a press release today.

Despite the increase, Knight Frank believes that Kuala Lumpur’s overall office market remains under pressure, with high impending supply and landlords continuing to offer attractive lease packages to retain or attract tenants. Hence, the office rental market would likely remain challenging in the short to medium term.

Unexciting forecast for Asia-Pacific office rental
The overall Asia-Pacific Prime Office Rental Index rose 0.1% q-o-q to 157.3 in 3Q2019, slower than the 0.9% q-o-q growth registered in 2Q2019. On a yearly basis, the index climbed 1.8%, decelerating from the 3.4% rise in 2Q.

“The office markets across the Asia-Pacific region continue to face familiar foes as aftershocks from the ongoing US-China trade tensions continue to impact market confidence, a concrete Brexit conclusion remains elusive and Hong Kong, a major office market within the region, grapples with unprecedented social unrest,” the consultancy noted.  

Of the 20 cities tracked by the index, 12 recorded either stable or increased quarterly rents in 3Q, less than the 14 cities reported in 2Q.

India’s Bengaluru outperformed with the highest rise at 8% q-o-q, driven by a healthy 33% y-o-y growth in 1H2019 in the IT industry. The city’s rents climbed by 17.6% y-o-y.

Australia’s office markets saw a healthy 3Q, thanks to the steady economy, low unemployment, low interest rates, continued demand for quality space and limited supply. Sydney’s rents rose 2.5% q-o-q due to limited available supply and continued demand for prime space, while Perth recorded a 2.3% q-o-q rental growth as the recent sustained recovery in the commodity sector continues to drive a turnaround for the office market.  

Meanwhile, Hong Kong recorded the biggest decline of 5.6% q-o-q and 8.3% y-o-y among the 20 cities, as the tenant decentralisation trend continued and the ongoing social unrest persists.

“Heading towards the end of 2019, the consultancy maintains its estimation for a softer full year result. The rental index is expected to grow between 0 to 3%, down from 7.7% recorded in 2018,” said Knight Frank.

Table: Asia-Pacific Prime Office Rents 3Q2019

Source: Knight Frank Research / *Sanko Estate