‘Prime office rents in KL to continue to fall’

This article first appeared in City & Country, The Edge Malaysia Weekly, on June 10, 2019 - June 16, 2019.

Teh: Amid heightened competition and growing economic concerns, rents in the Kuala Lumpur city centre are likely to fall. photo by Sam Fong/The Edge

Holt: The muted start is likely to [continue] through the year, with moderate increases in rents compared with 2018. Photo by Low Yen Yeing/edgeprop.my

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Prime office rents in the Kuala Lumpur city centre decreased 0.3% quarter-on-quarter in the first quarter of the year (1Q2019) and are expected to continue falling for the next 12 months, according to the Knight Frank Asia-Pacific Prime Office Rental Index for 1Q2019 report.

This is on the back of a 0.4% q-o-q fall in the regional index to a reading of 142.6 in 1Q2019. The index has seen quarterly declines since 3Q2018. Year on year, however, it recorded an increase of 6.2%.

The report tracks 20 cities in Asia-Pacific, namely Brisbane, Melbourne, Perth, Sydney, Tokyo, Beijing, Guangzhou, Shanghai, Hong Kong, Taipei, Seoul, Bengaluru, Mumbai, National Capital Region (India), Phnom Penh, Jakarta, Kuala Lumpur, Singapore, Bangkok and Manila.

Knight Frank Malaysia executive director of corporate services Teh Young Khean says the tenant-led office market in Kuala Lumpur continues to be under pressure due to the looming incoming supply and weak absorption of space.

“Amid heightened competition and growing economic concerns, rents in the Kuala Lumpur city centre are likely to fall,” he adds.

The report also states that 15 of the 20 cities recorded either stable or increased rents — two less than the 17 reported in the previous quarter.

Singapore saw the highest y-o-y increase in prime office rents of 23.7% in 1Q2019, partly driven by the limited supply of mid-sized units. Meanwhile, Jakarta experienced the biggest y-o-y plunge of 16%, continuing the downward trend it has seen since 4Q2014.

Bangkok’s prime office rents rose 6.1% q-o-q and 11.6% y-o-y due to a demand and supply imbalance. There is no imminent incoming supply in the Thai city but tenants are continuing to seek high-quality space.

Moving forward, Knight Frank is maintaining its muted growth outlook for the year as it expects the rental index to only experience an increase of up to 3% this year — down from the 7.7% increase seen in the previous year.

Knight Frank head of research for Asia-Pacific Nicholas Holt observes a soft start to prime office markets in Asia-Pacific this year as sentiment continues to be dampened by uncertainty about major elections across the region, the unresolved Brexit issue and the re-escalation of trade tensions between the US and China.

“The muted start is likely to [continue] through the year, with moderate increases in rents compared with 2018,” he says.