Klang Valley office supply is still considered ok – C H Williams Talhar & Wong

Not too long ago, my colleague who bought a commercial property said that she has managed to secure a tenant for her unit in a new departmental store in Damansara. She said many people has told her that buying commercial properties are dangerous today. There’s huge over supply. I happen to know a few years ago one company paid RM4.50 psf for an office in Bangsar South. Most recently, it has to pay RM5.50 psf for a bigger office in the same building. Question is, if the supply far exceeds demand, why is the rental still going up? I could only think perhaps the supply is based on all the new supply coming in while demand is not sufficient to take up everything that is offered.

I have no answer but today in The Star (19th March) , a real property guru has the following comments: Property consultancy C H Williams Talhar & Wong said the supply of Klang Valley office space for this year may not be as daunting as earlier thought “due to control by developers and owners” He said that while it is very true that in terms of planning, we have oversupply but the developer or owner can actually control the situation. They can either slow down or even pause the construction. For example, in 2013, there were a total of 92.7 mil sq ft of office space in the Klang Valley last year. New office space added was 3.3 mil sq ft and take up was 3.1 million sq ft. Thus, a balance of 200,000 sq ft was “not frightening”, Foo said. However, he expects a total of 6.75 million sq ft to be completed in 2014 and 1.45 million sq ft in 2015, a total of 8.21 million sq ft. With assumption of a constant take up rate of 3 million sq ft for each year, that leaves a balance of about 2 million sq ft, or four buildings. (An office building has an average space of about 500,000 sq ft.). Thus his conclusion was that he was not as negative as most (property consultants).

I have always believed that the market should be determined by demand versus supply. Too little demand, oversupply happens and the rental comes down. This is when the better building management would be the deal breaker because if they are managed well, a little difference would not cause their tenants to move. However, for buildings which are not well managed, their tenants would move and this is where demand vs supply will move all the building owners to be more efficient. I believe this is much better for the market compared to having too much demand but not enough supply which pushed the rental rates up and the cost of doing business goes up as well. Please bear in mind that new office space cannot suddenly appear. It takes years to build. If rents are too high, in the long run, less companies would want to set up because when they compare the fixed cost of setting up in Malaysia versus the region, they will choose somewhere else. As for those new supply coming online, they better have certain competitive advantages over the existing office supply. There are really more supply than there are of demand today based on whatever statistics available in the market.

written on 17 march 2014

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