Split views on office space

  • Property
  • Friday, 10 Apr 2020

Splir view office space

PETALING JAYA: Property consultants are split on the Covid-19 pandemic’s impact on the overall office market in the Klang Valley, with two saying that there would be limited effect, as demand has been weak over the last few years.

Another two are more bearish, expecting the vacancy rate to rise as a result of business closures.

Jones Lang Wootton executive director Malathi Thevendran told StarBiz: “The pandemic is not expected to have a great impact on the current situation, for we have already been experiencing limited demand with few new demand drivers for the last few years, with reduced demand from the oil and gas (O&G) industry occupiers due to the earlier (2014) fall in crude oil prices.”

The Klang Valley has among the highest supply of office space in the region.

All four, however, concurred that the state of flux created by the pandemic is creating new challenges to an already-very-challenged and vulnerable office sector.

Malathi said even prior to the pandemic, the overall office space was in a state of oversupply, with unoccupied space amounting to an all-time-high of more than 30 million square feet. “Together with an overall occupancy of below 80%, this situation is similar to previous recessionary years, ” she said.

“Although Malaysia is not in a recession, the World Bank’s current forecast of a -0.1% gross domestic product growth for 2020 will create more profound challenges for the office market. 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.”

On the same page as Malathi is CBRE|WTW managing director Foo Gee Jen. Foo said the Covid-19 impact “is likely to be minimal in the short run due to the fact that office tenancy by default has longer lease terms”.

Through this movement control order (MCO), there will be a lot more organisations that will strive to be more agile in their operations. The offshoot of this is “the realisation that the remote working arrangement could perhaps even translate into more demand for smaller office space in the future”, Foo said.

At this juncture, the Klang Valley’s office occupancy rate is still hovering slightly above the healthy benchmark of 80%, while the rental rates have been stable in recent years.

Foo said: “The greater threats lie within the economic uncertainty and the oil price volatility because the O&G industry, in particular, is a significant economic segment in Malaysia’s economy, and the Klang Valley’s office market.

“Should a recession or a slowdown take place in the O&G industry amidst the sizeable supply in the pipeline, the office oversupply situation could become a more material concern.”

MacReal International founder Michael Kong and Datuk Siders Sittampalam, managing director of PPC International, are more bearish. Kong expected further downward pressure on rental.

“If existing businesses find it difficult to keep up with rental, rental negotiations will happen. If negotiations fail, more units will be unoccupied, ” he said.

Siders said it is a given that businesses will be asking landlords to reduce rental. His suggestion: “Keep it tenanted. Vacant spaces do not create a good image, and makes it harder to rent.”

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