Office building woes


WHEN Menara TM was put up for sale two weeks ago, it caused quite a stir. There were those who thought the telco giant was going through tough times and needed to resort to selling its headquarters.

But that was clearly not the case. Menara TM is not owned by TM, but by a special purpose entity whose owners acquired Menara TM, along with three other buildings from TM, back in 2008.

They paid TM RM1bil for those buildings. Essentially, TM has opted not to exercise its right to buy back the building following the expiry of the tenancy it had with the current owners (see box story for the structure of the original deal).But why? As TM has explained, it is going through its own transformation, part of which is cost optimisation. But more importantly, “to accommodate our new hybrid working model,” TM had said.

Since becoming its managing director and group CEO in July 2020, Imri Mokhtar has been known to be driving TM through a transformation by reforming its human resource management.

Hand-picking top performers from within the 20,000 strong workforce to drive measurable results, Imri, a former McKinsey consultant, is also said to be driving TM’s workforce to be more agile, a move which clearly got a boost from the work-from-home practice during the pandemic.

“As part of TM‘s cost-optimisation strategy and to accommodate our new hybrid working model, the company made a decision to relocate the majority of our workforce to our TM-owned properties. This decision will enable significant cost savings from a rental and maintenance perspective, as in a post-pandemic work environment, it is evident we no longer require the conventional use of office space,” TM had told StarBizWeek recently.

For sale: The imposing sight of Menara TM along the Federal Highway. Its current lease agreement lapses in January 2023 and TM has no intention of renewing the lease or acquiring the building.For sale: The imposing sight of Menara TM along the Federal Highway. Its current lease agreement lapses in January 2023 and TM has no intention of renewing the lease or acquiring the building.

The current lease agreement at Menara TM lapses in January 2023 and TM has no intention of renewing the lease or acquiring the building, it added. TM will, however, continue to rent out five floors at Menara TM even after moving out from the other floors. Those floors will act as the corporate headquarters for TM.

So what now? Can the vendors fetch back the RM1bil for those buildings?

One positive sign is that there seems to be some buyers for old iconic buildings in Kuala Lumpur.

Last December, Hap Seng Consolidated Bhd acquired the iconic Wisma KFC in Jalan Sultan Ismail, Kuala Lumpur, for RM190mil, buying it from Singapore-based property developer and manager Royal Group.

Hap Seng has said that the acquisition of Wisma KFC would add synergy to its three office buildings – Menara Hap Seng, Menara Hap Seng 2, Menara Hap Seng 3 – located in Jalan P Ramlee. The group plans to turn Wisma KFC into a hotel and to link it with Menara Hap Seng 3.

In fact, Hap Seng has plans to establish five hotels in Malaysia mainly in the Klang Valley and Sabah in the next few years, marking its foray into the hospitality sector.

But how many buyers out there are like Hap Seng? Considering the ongoing pandemic, would there be that many entrepreneurs keen to turn older buildings into hotels?

Yes, declares Zerin Properties CEO Previndran Singhe. His firm had done a report on the conversion of buildings into hotel premises a few years ago. That report stated that the conversion of office buildings into hotels is a good way to maximise asset values. However, is that still the case, considering how the pandemic has affected travel and tourism?

“It is now an opportune time for buyers to snap up old buildings that are suitable for conversion into hotels to cater for the recovery when tourism picks up again.”Previndran Singhe“It is now an opportune time for buyers to snap up old buildings that are suitable for conversion into hotels to cater for the recovery when tourism picks up again.”Previndran Singhe

“Definitely. It is now an opportune time for buyers to snap up old buildings that are suitable for conversion into hotels to cater for the recovery when tourism picks up again,” says Previn.

“Vacant office buildings in the city, which often have prime locations nearby popular holiday destinations, are perfect buildings to convert into hotels.

“With the buildings being tenanted by nothing more than dust and with a few of them up for sale, coupled with the potential rise in tourism, the conversion of vacant office buildings to hotels present opportunities to a certain class of entrepreneurs,” adds Previn.

The question still remains if the TM buildings up for sale will be able to fetch the targetted RM1bil price tag.

PPC International managing director Datuk Siders Sittampalam notes that it is a challenging market for the office sector now. “Hence it will be difficult, generally speaking, to fetch high prices for such buildings,” he says.

He adds that properties that are occupied on a leaseback, generally carry an element of risk.

“If tenants were to move out tomorrow, it will be tough to replace a huge vacant space. This is especially with the oversupply situation now and post-Covid-19, there is a higher demand for hybrid spaces or smaller office spaces,” he explains.

He also notes that Menara TM is not in a prime office district and is, in fact, on a standalone location, as opposed to say Bangsar South, which is an office address.

Sittampalam: It is a challenging market now. It will be difficult, generally speaking, to fetch high prices for such buildings.Sittampalam: It is a challenging market now. It will be difficult, generally speaking, to fetch high prices for such buildings.

To be sure, the office space supply glut has been ongoing in Malaysia, and particularly the Klang Valley, for many years now. According to Knight Frank Research in its Real Estate Highlights for the second half of 2021, the cumulative supply of office space in Klang Valley stood at around 112.6 million sq ft during the period under review, following the completions of Plaza Conlay@Conlay 301 and Imazium@Uptown in Selangor.

It adds that there are nine office buildings scheduled for completion by the first half of 2022, with five located in KL City and two each within the KL fringe area and Selangor.

But Previn says that not all old buildings are in a tough spot. You need to have the three “Ls” sorted, he quips. “Lifts, lobbies and lavatories. Why is it that you have older buildings by some property firms such as UOA (Development Bhd) and IGB (Bhd) which still boast of high rentals and occupancy rates? So not all old buildings are in a tough spot,” he claims.

Meanwhile, yet another old iconic building in the city centre has been up for sale since 2018 and with no takers yet. In that year, HSBC Bank had placed its Malaysian headquarters, namely, Menara HSBC South Tower in Leboh Ampang up for sale, with an indicative price of RM110mil.

In HSBC’s case, the plan was to move into its new headquarters, Menara IQ, in the Tun Razak Exchange. Menara HSBC South Tower is a 19-storey building which is 42 years old.

The firm that has secured the deal to market Menara HSBC as well as Menara TM is CBRE|WTW.

The advertisement describes the building as a landmark in the Kuala Lumpur Central Business District, located near public transport, and within walking distance of the Masjid Jamek LRT station and Pasar Seni MRT and LRT station.

It adds that the building use could potentially be changed “to other commercial use such as hotel and education” with the approval of the local council.

In the case of Menara TM, CBRE|WTW describes the sale as “a rare opportunity to acquire en-block a commercial real estate within the KL Sentral-Bansar South corridor.”

Top job: Imri has been known to be driving TM through a transformation by reforming its human resource management.Top job: Imri has been known to be driving TM through a transformation by reforming its human resource management.

It also states that the 55-storey freehold purpose-built office tower has “fundamental benefits that would embolden ambitious suitors to unlock the commercial potential into a lucrative value driven opportunity.”

It is left to be seen if that marketing lingo will work on potential suitors for Menara TM.

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