Johor office market needs demand drivers

CLICK ON ENLARGE

PETALING JAYA: Unlike the Klang Valley where there is a massive supply of office space, the main issue in Johor is its lack of crucial demand drivers, property consultancies said.

Although office occupancy rate is at between 60% and 70% and Johor Baru city centre’s monthly office rental has been around RM2.50 to RM3.50 per sq ft for many years, real estate professionals remain optimistic.

Office oversupply is “not a big issue” and drew comparison with Klang Valley’s 126 million sq ft of office space with a population of 8 million versus Johor’s 7.4 million sq ft for a population of one million.

It is a ratio of 15.75 sq ft of office space for each person in the Klang Valley versus 7.4 sq ft in Johor, said consultant Bruce Lee from VPC Alliance Johor.

Like most of his counterparts, Lee is pinning his hope on three things: the continual progress of Iskandar Malaysia, the Rapid Transit System (RTS) and the high-speed rail (HSR) to become a reality as well as the state’s effective and business-friendly policies.

Iskandar Malaysia is an economic region three times the size of Singapore comprising most of Johor Baru, part of Pontian and part of Kota Tinggi. The RTS connects Johor Baru and Singapore and the HSR, Kuala Lumpur and Singapore. Iskandar Malaysia was launched in 2006.

Lee said: “Iskandar Malaysia is a mega development with a great long-term vision. It was this, which brought many developers from the Klang Valley to come here to build purpose-built offices in order to capture Iskandar Malaysia’s projected or future demand.

“Although the current occupancy rate does not look encouraging, what Iskandar Malaysia needs today is more time to unleash its potential. New demand will be created as the authorities make more competitive policies to attract businesses.”

Landserve (Johor) Sdn Bhd executive director Wee Soon Chit said the benefits as a result of the proximity between Johor and Singapore are there but for now, they just remained behind a veil.

“We have not been able to fully ride on (this proximity factor) due to the accessibility issue. Many would agree that Iskandar Malaysia is in dire need of the RTS and the high-speed rail, ” Wee said.

Over the last several years, spanking new purpose-built offices have cropped up. According to CBRE|WTW 2020 outlook report, Iskandar Malaysia has 5.6 million sq ft of privately purpose-built office space.

Of this, 3.83 million sq ft, or 52%, are existing purpose-built offices while 1.80 million sq ft are new and 1.78 million sq ft are expected to be completed this year and next.

The consultancy is expecting rent to revise downwards for new purpose-built.

New offices in the city centre and Medini/Puteri Harbour localities in the near future are forecast to adjust to competitive rates ranging from RM4 to RM4.50 per sq ft and RM3 to RM4 per sq ft, respectively.

New offices in the city centre was more than RM5 per sq ft in 2018.

Rates for older offices in the city are expected to trend down to a level of RM2 to RM3 per sq ft in order to retain existing tenants versus RM2.50 to RM3.50 per sq ft today.

KGV International Property Consultants (Johor) Sdn Bhd executive director Samuel Tan said Iskandar Malaysia, and by extension Johor, lacked demand drivers.

The state capital Johor Baru has not proven to be an ideal location for multinational companies to set up their headquarters or regional offices, Samuel said.

“Most companies would rather set up their main offices in Singapore due to its global financial centre status and a regional office in Kuala Lumpur.”

Most of Johor Baru office space are located within the city centre.

Medini Iskandar is the other location with purpose-built offices, which include Medini 6,7 and 9. The take-up rate remained challenging even before the advent of Covid-19, Samuel said.

Ongoing schemes such as Medini 10 will need a rethink on its further progress. Medini 7 and 9 are resilient, unaffected by Covid-19 as the existing tenants are long-haul quality ones.

Johor economy is supported by small and medium enterprises and sole proprietors who prefer to operate from shop-offices.

He said the upper levels of many shop-offices are vacant but there is no official data tracking their occupancy.

Knight Frank Johor in a statement said since the Covid-19 pandemic, investors had become more cautious and defensive in the state’s commercial properties, in particular the office and hospitality sectors.

The logistics/industrial segment stood out as the most encouraging sub-sector, branch head Debbie Choy said.

She said she continued to receive active enquiries on industrial-type opportunities.

“The outlook for the state’s logistic sub-sector remains upbeat, supported by the presence of three seaports, namely Port of Tanjung Pelepas, Johor Port and Tanjung Langsat Port, as well as the Senai International Airport, ” she said.