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Monday April 13, 2009

Office rentals in KL to fall by this year

Rates in KL expected to drop by 10% to 15%

OFFICE rental rates in Kuala Lumpur are expected to drop by 10% to 15% from their peak of about RM8 per sq ft this year amid the economic slowdown.

Although office occupancy rates are still holding up quite well, rental rates are expected to fall from their earlier highs due partly to new office space coming onstream.

DTZ Nawawi Tie Leung executive director Brian Koh said that at least a dozen new office buildings, with a total net lettable area of 4.13 million sq ft, would be completed in KL and other parts of the Klang Valley this year.

Of these, four – Menara Worldwide, G Tower, Fraser KL and The Icon – are located in KL’s golden triangle, while the rest are in central commercial areas and other decentralised areas such as KL Sentral, Bangsar and Petaling Jaya.

Amid uncertainties and fears of a long global economic downturn, occupancy costs are expected to decline in many business districts around the world, led by the contraction in occupier demand.

According to DTZ Research’s 2009 global office occupancy costs survey, covering 114 business districts in 49 countries and territories worldwide, the seismic disruption of the global financial system, which started in mid-2008, has wiped out much of the strong growth recorded by many office markets over the past few years.

The annual survey looks at the main components of occupancy costs in major office markets across the globe and provides a ranking based on total occupancy costs per workstation.

About 78% of the 114 business districts surveyed expect occupancy costs to fall this year, 3% expect a slight increase, and the balance 19% expect costs to remain stable.

Only the Middle East and Africa regions, and central and eastern Europe registered positive annual growth in office occupancy costs of 28% and 11% over the previous year, while other regions witnessed declines in costs.

All business districts surveyed in western, central and eastern Europe, and central and south America expect occupancy costs to fall this year.

In North America, occupancy costs are expected to remain stable in 61% of the business districts surveyed, while a further 39% – comprising mainly the largest business districts at the heart of the financial turmoil – are predicted to experience a significant decline in occupancy costs.

About 76% of the markets surveyed in the Asia-Pacific expect office occupancy costs to fall and 24% see costs remaining stable over the year.

In the Middle East and Africa regions, 30% of the respondents expect some increase in occupancy costs, while the rest expect costs to fall throughout this year.

DTZ said the prospects of an impending supply glut in some markets and the wider adoption of flexible work practices leading to reduced space consumption would help drive down occupancy costs, especially across Europe and the Asia-Pacific region.

Space utilisation standards across most regions are expected to decline as companies focus on space optimisation and cost reduction measures.

Meanwhile, new, better-designed offices with larger floor plates and fewer columns will gradually contribute to greater efficiency in space layout.

In terms of rents and other outgoings per sq ft, Moscow, Hong Kong and London (West End) are the top three most expensive office locations in 2009.

However, due to a higher space utilisation standard per workstation, Tokyo (Central 5 wards) was the world’s most expensive office location on a cost per workstation basis. Its space utilisation per workstation was 144 sq ft compared with Moscow’s 84 sq ft, Hong Kong’s 118 sq ft and West End London’s 118 sq ft.

Tokyo (Central 5 wards) has overtaken London (West End) as the most expensive office location on a cost per workstation basis.

London (West End), which had been the most expensive office market on this basis since 2001 when DTZ first compiled such rankings, was ranked fifth.

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