The Covid-19 pandemic has added pressure to the Klang Valley’s office space oversupply woes. In fact, even before Covid-19, office space oversupply has been on the rise, exerting pressure on rent in the past several years.
A Jones Lang Wootton study showed that occupancy has been declining from 81% in 2015 to 74% in Q1 2020, while vacancies increased from 20.48 million sq ft to over 30 million sq ft, as reported by The Star.
Malathi Thevendran, Executive Director of Jones Lang Wootton, said the pandemic “only highlighted the severity of the struggling office market”.
“Hopefully, it will trigger some much needed government intervention by ensuring that speculative buildings are not built,” she said.
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However, oversupply does not only exist in the Klang Valley, which comprises Selangor, Cyberjaya, Wilayah Persekutuan and Putrajaya. This problem has been felt across the nation for some years now.
According to the National Property Information Centre’s (NAPIC) Q3 2019 report on privately-owned purpose-built office space, Malaysia has 181.34 million sq ft, with overall occupancy at 75.4%.
As for the Klang Valley, the report showed that there are 136.29 million sq ft of space in the Federal Territory of Kuala Lumpur, Selangor and Putrajaya.
Of the three, occupancy at Putrajaya stood at 38%, 72.2% in Selangor and 77% in Kuala Lumpur as at 30 September 2019.
As the pandemic adds to existing vulnerabilities, office building owners and local authorities need speedy and agile solutions.
Local authorities can introduce certain planning approval restrictions, like in other countries, to ensure a sustainable built environment.
“An example would be, should all new proposals and those which have been approved, but yet to commence construction, be subject to occupation guarantees?”
In fact, the market has been calling for such controls, said Malathi.
“We can’t attribute the current state of the market to the Covid-19 pandemic as the overbuilt situation has materialised over the past four to five years.”
The oversupply situation has resulted in adjustments within the office market, with landlords dangling attractive incentives like lower rents, longer rent-free periods and paying for fit-outs.
Although the practice may continue, Malathi said landlords should “look towards the players who are least detrimentally affected and have the potential to grow in this current situation”.
“Focus on them. They include those in health industry, the wellness market, and certain manufacturers,” she said.
Meanwhile, Foo Gee Jen, Managing Director at CBRE|WTW, sees organisations being agile in their operations
“Remote working arrangement could perhaps translate into demand for smaller office space in the future,” he said.
Mirroring his views, Knight Frank’s Executive Director for Corporate Service Teh Young Khean expects flexible working space to be hit in the short-term.
“Over the medium and longer term, companies may want co-working spaces as a back-up plan,” he said.
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