Greater pressure on office rental seen in one to two years

Office rental is expected to come under greater pressure in about a year or two with landlords going as far as giving longer rent-free periods of up to six months and upon renewal of tenancy, said Sarkunan Subramaniam, managing director of real estate consultancy Knight Frank Malaysia. The other feature of the office space segment would be higher vacancies in older buildings as tenants opt for newer buildings with green and Multimedia Super Corridor status, he said. “This trend (of giving rent-free period) and older buildings being left vacant will grow in the next couple of years. “You have the sticker price remaining flat but the rent-free period trend increasing, even on renewal,” Sarkunan said at the Greater KL Office Space Connudrum: Winners & Losers forum organised by Malaysia Property Inc (MPI). An MPI statement said Klang Valley’s supply of office space had grown from 69.56 million sq ft 10 years ago to 104.66 million sq ft in the first half of this year, with another 21.96 million sq ft of incoming future supply. Sarkunan said overall occupancy rate hovered around 80%. However, despite the supply concerns, he said Kuala Lumpur would not see a property crash such as Dubai’s. “This is just an exaggeration and there is no real comparison between Kuala Lumpur and Dubai,” he said. Meanwhile, Khong & Jaafar managing director Elvin Fernandez, also a speaker at the event, said around 24 million sq ft of office space remained vacant out of the total existing supply. He said this was based on a National Property Information centre report. “This is close to 25% and now we have this new segment called green buildings, and the landlords of older buildings will suffer,” Fernandez said. He added that there was an incoming supply under construction of close to 20 million sq ft. Added together with current vacancies, this would mean a total of 44 million sq ft. The current supply of office space raised the question of various government mega projects being planned. Towards this end, 1Malaysia Development Bhd executive director Stephen Ashford, in a closed door session, said the Tun Razak Exchange, with its 9 million sq ft of office space, would be different from all other projects and property development in the country as the project would be the country’s financial centre. He said because of the difference, it would attract another type of tenants who may not have a strong presence yet in the country.