Rental rates KL dropping for the 6th consecutive quarter

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3 years ago, my good friend was helping an Australian multi-national company based in Kuala Lumpur to move into a bigger office to house all its 400 staffs at the same place instead of in 3 different office locations. The buildings surveyed which meets most of other requirements such as near to LRT stations, nearby eateries and looks corporate enough just do not have the space required. As for the buildings which have the space, it’s either too expensive (no wonder there’s space) or they do not meet many other supplementary requirements. Anyway, fortunately they found the right place and today the 400 staffs are happily working from the nice corporate building in the downtown of Kuala Lumpur. Well, how’s the office market today?

Article in themalaysianreserve.com According to Knight Frank’s AsiaPacific Prime Office Rental Index 1Q19, office rental growth in KL dropped by 1.4% compared to a year ago and a 0.3% slump compared to 4Q18. Office rental rates have been declining for the past six quarters since 4Q17. Knight Frank is also forecasting a continuous decrease in the next 12 months. Knight Frank Malaysia corporate services ED Teh Young Khean said, “Amid heightened competition and growing economic concerns, rents in KL City Centre are likely to fall.”

There is now an estimated 90 million sq ft of office space in KL and millions more are expected to come into the market, especially with the completion of other grade-A office structures. Due to the slowing economy, companies are also moving out of the KL business district and look for cheaper alternatives as they aim to reduced their fixed cost. Knight Frank Asia-Pacific research head Nicholas Holt said, “Prime office markets in Asia Pacific saw a soft start to 2019 as the sentiment continues to be dampened by uncertainties following major elections across the region, an unresolved Brexit and the re-escalation of trade tensions between the US and China.” In Singapore, the office rental jumped 23.7% in 1Q19, driven partly by limited supply. Article in themalaysianreserve.com

Please look at these as stats instead of whether it’s just plain good or plain bad. High rental rates are not good because this will drive up costs and costs will drive up prices and prices will drive up inflation and since all of us hate inflation, thus high rental rates are not good. Low rental rates are pointing towards an excessive supply of office units and thus when everyone tries to attract a smaller number of businesses, everyone drops prices. By the way, in the survival of the fittest scenario, the newer buildings will go down to similar rates as a less attractive and old building and this will ‘kill’ off its competition. Imagine what happens when these ‘older’ buildings are killed…? Yea, supply and demand will continue to correct itself over a period of time. Unlikely to be within months yeah.

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Article written and edited by Charles. News article summarised by Dina Batrisyia.

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