KL office rental under ‘threat’ due to over-supply.

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There has been reports about KL office space under pressure due to the pulling out of some oil and gas companies. With the current oil price, I think it will be  some time more before any of these oil and gas companies hire aggressively again  Keeping that high paying job may be on the minds of all the il and gas professionals currently. For those who lost their jobs, it should a wake-up call that no matter how much we earn, it is far more productive to invest some portion of the monthly pay instead of driving around in the latest 5-Series especially if there’s not much savings in the bank. (Yes, I personally prefer BMW over Mercedes but only if I have unlimited funds to buy a car.)

This is not all, another report in local media based on The Edge / Knight Frank Klang Valley Monitor 3Q 2015 showed that within the KL, KL Fringe and Beyond KL (Selangor), a huge supply of office space would continue to put pressure on rental rates. Completion of Ilham Tower added 394,000 sq ft net lettable area (NLA), Menara Bangkok Bank (475,000 sq ft NLA), Q Sentral (one million sq ft NLA) and The Vertical 1 & 11 (830,000 sq ft NLA) meant that the cumulative supply of office space for KL City and Beyond KL stood at 91.97 million sq ft. This is not all, more are coming. The total cumulative office space under construction in KL City, KL Fringe and Beyond KL stood at 9.88 million sq ft.

My personal opinion about office over-supply in KL is that it’s just another report. If the oversupply is really that bad, why are the office rentals in some areas still going up? Is it because the older ones are really not attractive at all? Perhaps even unsafe? When we think really objectively, if there isn oversupply situation, all the owners of these office buildings should be worried about losing their tenants. There are no numbers but I seriously think these cumulative numbers must take out all the dilapidated and old office buildings or even those buildings where parking spaces within the outside is limited. For buildings where the total occupancy is already lesser than 50 percent, I think the maintenance funds may be lacking and within a few more years, these buildings would no longer be attractive even if the rental is lower than the established ones. It’s not hard to know. Just ask your friendly real estate agents for some office rental rates within the KL / KL Fringe. The difference is going to be HUGE. In fact in Penang, there are some offices where it is still RM1 per sq ft. Two major issues, parking and maintenance.

Knight Frank Malaysia managing director Sarkunan Subramaniam also disclosed that the latest occupancy rates in KL City is at 82.4 percent, after dipping by 1.7 percent. Meanwhile in the central business district (CBD) the occupancy has dropped 2.7 percent to 87 percent. The Golden Triangle is at 81.6 percent with a decline of 1.5 percent. However, in the KL Fringe area, the occupancy rose 0.3 percent to 89.1 percent. This was helped by the popularity of both Damansara Heights (up 0.8%) and KL Sentral (up 5.2%). Lots of other numbers were also mentioned in the article. Do read the original article if you want here: KL office rates under pressure – TMI

JLLI think everyone would have noted that occupancy remains healthy even if pressure may increase slightly due to the many new ones being built currently. If we are expecting the rental rates to suddenly drop by double digits for the next few years, I seriously doubt it would be happening unless the economy continue to be extremely slow and basically the whole world enters into a recessionary mode for many years. Oh yeah, renting in a good and popular office spot would also enable any organisation to hire better people. Truth is, good talents would hate working in a old building where they have to park extremely far away etc. Based on the potential returns from these staffs, it is by far better than the RM2 extra per sq ft that the organisation intend to save by moving from a better place to a worse place. Seriously, think about it. Happy leasing.

written on 3 Jan 2016

Next suggested article: Occupancy at 85% but 75% over 16 years old

 

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