Kuala Lumpur will see an additional availability of 100 million sq ft of office space by the end of this year, beating other business hotspots like Singapore, Bangkok and Jakarta.
In a property market outlook report by CH Williams Talhar & Wong (WTW), the real estate services company noted that purpose-built office supply is estimated to grow by 5.51 per cent to a historical 99.98 million sq ft in the Klang Valley this year.
Among the thriving neighbouring capital cities, Singapore’s office space totals approximately 80 million sq ft, Bangkok around 84 million sq ft while Jakarta has nearly 80 million sq ft as well.
The data was presented by WTW managing director Foo Gee Jen, who pointed out that there will be a fresh supply of 4.83 million sq ft new office space, as 10 key commercial developments are estimated to complete this year.
The most of these projects nearing completion are in Central Kuala Lumpur (57 per cent), followed by Metro Kuala Lumpur (38 per cent) and Greater Kuala Lumpur (5 per cent).
Foo noted that the office segment would be a “tenant’s market” due to the supply increase and that rental has not moved in tandem with the increase in commercial property prices. However, vacancy was not a concern yet, albeit market talk of a glut in city office space supply.
“The take-up rate is still healthy. Kuala Lumpur offices have a occupancy rate of about 85 per cent, not too far off from Singapore, Bangkok and Jakarta which have it around 90 per cent,” he told the media in a briefing.
New office supply for the capital city in 2014 was 2.57 million sq ft, with 81 per cent of that in the heart of Kuala Lumpur and 19 per cent in outer Kuala Lumpur. Of that, 1.58 million sq ft was absorbed by the market.
Vacancy rates in 2014 was 15.4 per cent in the entire Klang Valley (includes Kuala Lumpur, its suburbs and adjoining cities and towns in the Selangor state), 13 per cent in Kuala Lumpur and 21 per cent in outer Kuala Lumpur.
Foo observed a strong appetite for Grade A office space among companies.
“Grade A offices, those with MSC Malaysia status and green building certification, will continue to be filled up quite easily. It has not been very easy for us to find Grade A offices for our clients,” he commented, noting that such offices only make up 15 per cent of the market’s supply.
MSC Malaysia status is recognition by the Malaysian government for ICT and ICT-facilitated businesses or space that develop or use multimedia technologies to produce and enhance their products and services.
Despite the influx of new office space expected this year, Foo was positive that the domestic demand will hold.
“70 per cent of the offices in Kuala Lumpur are aging, they are more than 25 years old. Companies, seeing the competitve rental rates, may want to relocate to new offices. For the older office owners, the pressure is not to fill it up but how to rejuvenate or maintain their buildings,” he said.
He noted that most of the older commercial buildings have a very low plot ratio, compared to the standard in today’s developments.
“Many of these aging buildings have under utilised plot ratio, at about four to five ratio only, while new buildings have a seven to 10 ratio, sometimes up to 12. The city has changed and it can be worthwhile to knock down and rebuild a commercial development,” he said.
A snag in policy, however, is hampering this. Kuala Lumpur commercial property owners have to get 100 per cent consensus from its tenants in order to carry out a redevelopment of the building.
Although the global investment climate is weakening, Foo said prime office rental will remain stable.
The Goods and Services Tax (GST), which will be implemented in Malaysia from April 1, will increase the cost of transfers and leasing in the office segment.
“Instead of paying a 10 per cent down payment and a two to three per cent stamp duty, buyers will have to add on another 5.5 to 6.5 per cent of GST as well, making their upfront payment for commercial units nearly 20 per cent,” he said of buyers.