JLL: Rent-free period rising from one month up to six months

A good sharing by JLL Property Services (M) Sdn Bhd country head for Malaysia YY Lau in an article in thestar. Read the full one here. JLL is part of the New York-listed Jones Lang LaSalle services and investment management firm. She was sharing in JLL-KLInvest’s 2016 Update & 2017 Market Outlook: Is Malaysia still an attractive real estate invesment destination? (I think the answer is a usual, YES.) Some other interesting points that she shared as below.

The rent-free period for office space renovation purposes has risen from the usual one month to up to six months. She also shared that, “The demand for rental to come down, rent-free negotiations, free car park and other ways to reduce cost will be some aspects of the office market this year.”

There are four places when it comes to office market. They include three core areas like the city centre or KL central business district, KL fringe which includes KL Sentral and Damansara Heights and decentralised areas like Petaling Jaya, Shah Alam. The fourth is administrative centres like Putrajaya and Cyberjaya. Rental is softening but super prime site like the Petronas Twin Towers in the KLCC area is RM13 per square foot (psf) and this will not drop.

City centre has been experiencing over supply since 2012. Landlords are thus more flexible and on average rental rates are down by about 10 percent. Typical rental of prime Grade A office space averages RM7.50 persq ft. There is no over supply in the decentralised areas and rental has not really dropped.

There are some strong sectoral features on location basis. In the city centre, engineering services occupy 58% of the leases from the second quarter of 2015 to the last quarter of 2016, in the KL fringe area IT companies have 31% of the leases, while in decentralised area, pharmaceutical firms have 47% of leases. (I could see pharmaceutical outlets everywhere I go, sometimes a few outlets within the same street)

Areas with good connectivity will see spikes in demand with Mass Rapid Transit (MRT) system being a game changer. Well, this good connectivity may mean some of us may stop driving into the KL city centre in the future.  Invest KL CEO Datuk Zainal Amanshah said, “Any city which modernises and introduces public transport will inevitably consider a CBD charge. Whether the authorities in Kuala Lumpur will do this, I cannot comment.”

For me personally, I would see the office space demand as a gauge of the economic activities. Oversupply happens when supply is coming into the market faster than demand. However, always remember that the reasons for the supply was because of the demand in the first place. Everyone wanted to capture that demand and that’s why they built but of course when everyone builds, the oversupply comes in. I think for Klang Valley an oversupply situation is not a bad thing. We may not want a high office space rental versus all the other capital cities in South East Asia. Let’s stay attractive. Happy following.

written on 21 Jan 2017

Next suggested article:  Property market to start picking up? Well….

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