Office rentals may come down
Published on: Thursday, August 25, 2016
Kuala Lumpur: The rising number in office supply with lower occupancy since 2015 is expected to ease rental rates for office space, moving forward, according to a property consultant.PPC International Sdn Bhd Managing Director Datuk Siders Sittampalam projected a large volume of office space, about 10 million square feet, was expected to be available in the next three years. "With the increase in office supply and slight decline in occupancy since 2015, the rental rates are expected to continue to remain at prevailing rates or even experience a marginal decline, post 2016.
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"With the incoming supply from TRX, Bandar Malaysia, Menara118 and other integrated developments, the office space market is bound to see an oversupply in general, unless, there is an unexpected rebound in economic activities," he told Bernama. Given the current economic challenges, both internal and external, Siders said he did not foresee a recovery in the second half of 2016 but expected landlords to re-adjust rental rates to make them more attractive to prospective tenants. "Currently, Tabung Haji has revised downwards the rental rates of five lower floors of their office building in the vicinity of the city centre to RM5 per square foot from between RM7.50 and RM8.50 per square foot previously. "This move is aimed at securing tenants and maximising the occupancy rate of the building. Possibilities are there for other landlords to emulate the same or to offer attractive rental packages to secure tenants for their buildings," he added.
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Siders said the office market environment was expected to remain challenging for the next two to three years. Meanwhile, Property Guru Malaysia Country Manager Sheldon Fernandez believed there was a long-term demand for Grade A office buildings with more international companies expected to set-up operations here as Kuala Lumpur continued to hog the limelight as an ideal location for international companies to set up their regional hub here.
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"Though there is a glut for other grades of office spaces, Grade A offices still hold great potential, going forward. Commercial (office space) was initially impacted by the imposition of the Goods and Services Tax, but the market has more or less adjusted itself to the shocks. "However, there will be specific office buildings and locations that are likely to buck the trend or at least maintain their occupancy and rental rates," he said.Sheldon said major tenants such as banks and oil and gas companies were looking to cut costs, hence, reducing office space would certainly be seen as a factor, as smaller office space would be sufficient for a smaller number of employees."For many companies, office space rental is the second biggest cost after employee payroll. Hence, during downturns, certainly office space is likely to be reduced, putting pressure on rental rates ultimately. "2016 is ultimately a tenant's market, similar to the residential sector where conditions are in favour of renters and buyers, but harder for landlords and sellers," he added.In order to maintain the current rent level, Sheldon said owners of office buildings should think of how to integrate or connect their assets to public transportation such as public rail connection.Stay up-to-date by following Daily Express’s Telegram channel.
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