KL Office Rent May Fall on Supply Glut

January 20, 2017

news1 KL

 

With demand for office space continuing to drop from 2016, Kuala Lumpur and its surrounding areas are expected to witness an office supply glut that could lead to a decline in rent, according to JLL Malaysia.

The real estate services provider attributed the scenario to a slump within the petroleum and financial services industry, which saw some offices in Kuala Lumpur shut down, downsized or consolidated.

JLL Malaysia country head Y.Y. Lau expects the rental market in the central business district (CBD) to soften due to an oversupply situation.

Kuala Lumpur fringe area (KL fringe) will also see more supply entering the market by end-2017, while Cyberjaya and Putrajaya will have sufficient supply. The office sector in decentralised areas (DC), however, will do fine since there is no oversupply situation there, she said.

“There will be a rise in vacancy rate, which will indefinitely put pressure on rents and capital values,” noted Lau.

In fact, office rents in the CBD and KL fringe areas are expected to fall by up to 10 percent this year.

She underscored, however, that not all office buildings will witness a dip in rent this year.

“For example, Menara Petronas will not be hit because it is doing well. It is just that more landlords will be open to rent negotiations. For instance, some of the landlords who used to ask for RM5 psf per month may be okay with RM4.70 or RM4.80 psf per month this year in return for longer term contracts,” explained Lau.

Meanwhile, capital values of Kuala Lumpur office are expected to decline further this year, said JLL Malaysia capital markets associate director Nick Charlton.

“Capital values have broadly remained flat, it is anticipated that capital values will reduce 0.3 percent in 2017 due to several reasons, such as weakness of the ringgit weighing on overseas investments, decline in office demand affecting investor sentiment, low occupancy rate and transaction volumes on the downtrend,” he said.

JLL Malaysia data showed that occupancy rate of prime offices in Kuala Lumpur has been on the downtrend, from 88 percent in 2015 to 85 percent in 2016. It is expected to decline further to between 80 and 84 percent this year.

Transaction value also plunged 76 percent from RM4.49 billion in 2015 to RM1.1 billion in 2016.

“We are anticipating investment volumes for 2017 to be in line with 2016,” said Charlton.

Looking ahead, Malaysia’s medium-term outlook is positive as continued investment in infrastructure development opens in new areas within Kuala Lumpur, he said.

“The current market presents opportunities for overseas purchasers with a lot of US dollar capital to deploy. However, the anticipated general election in 2017 may weigh on investment decisions in H1 2017.”

 

Image sourced from Independent UK

 

Radin Ghazali, Content Writer at PropertyGuru, edited this story. To contact her about this or other stories email radin@propertyguru.com.my

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