Pressure on office occupancy and rental in the Klang Valley

PETALING JAYA: The vast incoming supply of office space in the Klang Valley, amid the tight leasing market, is expected to increase pressure on occupancy and rental levels.

According to Savills executive chairman Datuk Christopher Boyd, some 6.2 million sq ft of office space is expected to be completed in the Klang Valley this year.

“The estimated net absorption rate this year is 1.9 million sq ft,” he told StarBiz.

Knight Frank in its Real Estate Highlights report for the first half of 2018, said the outlook for the Klang Valley office markets remained lacklustre, as impending supply amid the tight leasing market continued to add pressure on occupancy and rental rates.

“On a positive note, with the crude oil price looking to stabilise, there appears to be some returning interest from the oil and gas and its related sectors. Leasing enquiries from this sector as well as multinationals in other services industries exploring the Kuala Lumpur market have picked up.

“Also, with rising demand for flexible co-working space catering to the growing millennial workforce that comprises a mixture of freelancers, start-ups, small and medium size entrepreneurs and multinational corporations, 2018 will see active enquiries and leasing activities from co-working operators exploring new set-up or expansion.”

As of the first half of 2018, the cumulative supply of purpose-built office space within the Klang Valley stood at 101.3 million sq ft, following the completion of three buildings with a combined net lettable area of approximately 1.21 million sq ft, said Knight Frank.

“The recent completion of Mercu 2 @ KL Eco City increased the cumulative supply for the KL fringe to 28.6 million sq ft while in Selangor, the completion of Celcom Tower and Star Central (Phase 1C), brought its cumulative supply to 20.9 million sq ft.”

In the second half of 2018, the property consultancy said office buildings slated for completion included The Exchange 106 and Equatorial Plaza in KL City; South Point Office @ Mid Valley City and Menara Etiqa in the KL fringe; and Nucleus Tower, Menara Star 2 and Tower 6 of Sky Park in Selangor.

In the first half of 2018, Knight Frank said the overall occupancy rate within KL City remained fairly stable at 79%, while the overall occupancy rate for the Selangor office market was also flat at 79.2%.

“The average achieved rental rates for both KL City and Selangor remained under pressure as the mismatch between supply and demand continues to grow.”

Knight Frank said the average rentals for KL City and Selangor declined to RM7.16 per sq ft and RM4.20 per sq ft respectively.

“However, within the KL fringe, the average achieved rental rate remained resilient at RM5.72 per sq ft, supported by sustained demand from foreign companies and expansion by co-working operators.

“In KL, well-located Grade A office space continued to command higher rentals ranging from RM6 per sq ft to RM11 per sq ft per month, while in Selangor, the asking rents are more competitive, ranging from RM4.50 per sq ft to RM6 per sq ft per month.”