This article first appeared in City & Country, The Edge Malaysia Weekly on March 20, 2023 - March 26, 2023

The overall performance of the Klang Valley office sector remained stable in the last quarter of 2022, albeit with a slight decline in occupancy rates recorded in Kuala Lumpur fringe and Selangor offices, says Knight Frank Malaysia executive director of corporate services Teh Young Khean when presenting The Edge/Knight Frank Kuala Lumpur and Selangor Office Monitor 4Q2022.

He observes an influx of office supply in 4Q2022, such as The MET Corporate Towers in Mont’Kiara (KL fringe) and HCK Tower of Empire City in Petaling Jaya (Selangor), which caused marginal occupancy rates to drop by 1.9% and 1.1% in their respective submarkets.

The MET Corporate Towers is the first strata premier-grade office in Mont’Kiara, offering business suites with built-ups ranging from 818 sq ft to 16,104 sq ft. It has direct access to Malaysia’s largest convention centre, the Malaysia International Trade and Exhibition Centre (MITEC), and is a five-minute walk from a future MRT station. The office also boasts facilities such as a business centre, gym, glass box function hall and an auditorium.

Meanwhile, HCK Tower is a 38-storey Grade-A lifestyle and business tower that sits on a four-storey podium of a 2.5 million sq ft retail mall and offers ample covered parking spaces across three basement levels. As part of the integrated development of Empire City Damansara, HCK Tower is surrounded by amenities such as shopping malls, commercial hubs and major corporate organisations. It is easily accessible via major highways such as the Damansara-Puchong Highway, the New Klang Valley Expressway, the Sprint Highway, the Penchala Link and the newly completed Damansara-Shah Alam Elevated Expressway.

According to Knight Frank data, the current estimated supply of office space in KL city is 57.99 million sq ft, followed by KL fringe, at 29.94 million sq ft, and Selangor, with 25.93 million sq ft. This brings the total to 113.9 million sq ft.

Meanwhile, KL city has 2.9 million sq ft under construction, KL fringe has 2.2 million sq ft and Selangor has 1.5 million sq ft, amounting to a total of 6.6 million sq ft to be added to the market in 2023 or 2024.

Some of the notable tenant movements in 4Q2022 involved a tenant of T S Law Tower, which occupied 60,000 sq ft and is relocating to another building in KL city; a tenant expanding to occupy 80,000 sq ft in Platinum Sentral; a service management industry company moving into a new 14,000 sq ft office in NU Tower 2; as well as a consumer health and hygiene company moving into KYM Tower and taking up a total of 11,000 sq ft.

“All in all, offices in both Kuala Lumpur and Selangor displayed positive net absorption in 4Q2022, indicating a positive sentiment for the office sector,” Teh notes.

He also points out that overall office rents have largely remained the same from 3Q2022 to 4Q2022, with KL fringe displaying a slight increase.

Knight Frank’s data shows that the rental rates for offices in KL city have remained unchanged for three submarkets since 3Q2022: the new CBD (RM7.09 psf), the old CBD (RM4.47 psf) and the KLCC peripheral (RM3.90 psf).

Meanwhile, the rental rate for offices in KL fringe areas was largely maintained, except for Taman Tun Dr Ismail, Mont’Kiara and Dutamas, which saw an increase of 3.1% quarter on quarter to RM5.03 psf.

Similar to KL fringe, only Shah Alam office rents in Selangor saw a slight increase to RM3.42 psf in 4Q2022, from RM3.41 psf in 3Q2022. Office rental rates in Petaling Jaya dropped marginally, however, to RM4.39 psf, from RM4.41 psf in 3Q2022.

Commenting on the overall office outlook for KL and Selangor, Teh says the office market in the Klang Valley remains challenging in the medium term amid looming supply and a lack of a major catalyst to boost office demand.

“Global tech sector layoffs have seen the big tech players slow down on growth activity. As the tech sector is a vast business sector, however, overall activity is still dynamic, with small and medium firms taking the opportunity to explore expanding their footprint,” he says.

He adds that flight-to-quality remains prevalent, with multinational companies still looking to set up their operations in Grade A and green buildings, thanks to the increasing awareness about different aspects of environmental, social and governance (ESG).

“Green-rated buildings are becoming increasingly important as organisations seek to meet their sustainability goals. Corporate landlords are aware of these requirements and learning along with tenants to help meet their goals,” Teh says.

While there will be more incoming office supply in 2023 and 2024, Teh points out that co-working services, consumer staples, and healthcare-related businesses have been active in the office market, which should provide some support to the absorption rate and occupancy rate in the mid-term.

“We also observe that co-working operators, pharmaceutical, insurance and FMCG (fast-moving consumer goods) tenants are assessing their real estate needs and looking at options to either consolidate their portfolios or acquire and expand,” he says.

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