PETALING JAYA: Asean’s largest office stock lies in Greater Kuala Lumpur totalling 126 million sq ft, according to Savills’ Greater KL Office Market Overview First Quarter 2019 report.
It is the second largest after Hong Kong, which has 127 million sq ft, the property consultancy said.
But while Hong Kong’s office rental is the highest, at US$20.58 per sq ft (psf), Kuala Lumpur is the most affordable, at US$1.39 psf, according to Knight Frank’s first quarter Asia-Pacific Prime Office Rental Index 2019.
For perspective, neighbouring Singapore has 80 million sq ft of office space, Bangkok 97 million sq ft, Manila 73 million sq ft and Jakarta 67 million sq ft, said the Knight Frank’s report.
The KL situation – the largest supply and the lowest rental rate – has come about because of massive overbuilding over the past decade or so.
Some consultancies had warned about the growing supply since seven years ago while others had downplayed the situation over the past couple of years, saying that it was all right to have an occupancy rate of even 75%.
Kuala Lumpur’s occupancy rate was 79.7% as of end-2018, the 2018 Property Market Report from the Valuation and Property Services Department said.
The report said Kuala Lumpur had the highest negative take-up rate of 415,831 sq ft as of end-2018.
The office rental rate has been sliding for over several quarters, with landlords offering rent-free periods and bearing tenants’ cost of fit-outs.
Yet, despite such incentives, the take-up rate for office space year-to-date is negative, a developer who declined to be quoted said.
Greater KL’s stock of office space is equivalent to about 40 Petronas Twin Towers, which has office space totalling some 3.2 million sq ft on a net lettable area basis.
The situation is “rather concerning”, said an industry source, as more office blocks are being completed.
Savills said about 400,000 sq ft of new office space was completed by the end of March. Kuala Lumpur and its suburbs have up to 85 million sq ft of offices, Savills said.
Over a three-year span between 2019 and 2022, Kuala Lumpur city and its suburbs will have 13 million sq ft of office space, including those in Tun Razak Exchange (TRX), in and around the Kuala Lumpur City Centre (KLCC) and PNB118 project near Bukit Bintang City Centre.
The figure excludes offices under going construction in Selangor.
As newer and upscale offices enter the scene, there would be a “flight to quality”, which will negatively affect existing offices, Savills said.
“Greater Kuala Lumpur is the most affordable office market in Asia-Pacific,” Savills said, which concurred with the Knight Frank’s first quarter prime office market report.
“Completions of new supply and launches are decelerating slightly, but vacancy rates continue to rise,” Savills said.
Corporations are consolidating by shifting branch offices back to the headquarters, Savills said.
A clear case in point is British-based insurance company Prudential moving to its new headquarters in the TRX, taking its three business units with it.
TRX, expected to become a district with the post code of 55188, has among the most upscale office space in the city.