KL office rents expected to hold steady

The city’s rental rates are among the region’s most competitive

KUALA LUMPUR remains one of the region’s most competitive office locations and with over nine million square feet of new supply over the next three years, average rental rates are expected to hold steady, said a leading property group.

Rental rates of Grade A offices have rebounded to about RM7 (S$2.86) per sq ft after a 15 per cent drop for the greater part of last year. This was achieved despite the addition of 4.76 million sq feet of space from 14 new office buildings, said CB Richard Ellis Malaysia executive chairman Chris Boyd.

By the year’s end, vacancy rates had stabilised at 13 per cent because the bulk of new supply was non-speculative and substantially pre-let prior to completion.

CBRE Malaysia does not regard the additional planned supply as excessive, but a ‘tenant’s market is expected to prevail’ in the short term.

What would give the office segment a fillip is Kuala Lumpur getting back on the radar of international investors. According to Mr Boyd, this is already happening and was one of the driving forces behind the establishment of the local CBRE office — the latest affiliate of the CBRE group.

‘We have received more and more enquiries from international investors,’ Mr Boyd, who used to helm Regroup Associates, said, adding that Kuala Lumpur’s modern infrastructure, quality facilities and comparatively cheap rentals will help attract more investors.

The company expects broad-based demand from various sectors to pick up this year following last year’s liberalisation of foreign equity ownership rules, which did away with a tedious approval process – unless the transaction results in a dilution of bumiputra or government interests and the property costs RM20 million or more.

Although the RM3.5 billion worth from 28 major commercial transactions in the second half of last year mostly involved Malaysians, Mr Boyd is confident that further liberalising of the economy will pull in more local and foreign investments.

Malaysia’s leaders have hinted that the new economic model, which is to be announced next month, could substantially cut the restraints hindering the country’s competitiveness so that private investors would be encouraged to invest in the domestic economy rather than overseas.

The services sector would continue to receive greater emphasis as Malaysia has lost most of its competitive edge in manufacturing. Financial services were one beneficiary, with a number of international players awarded licences to operate in Malaysia. These include Goldman Sachs, the Industrial & Commercial Bank of China, Aberdeen, Nomura and BNP Paribas which are expected to set up offices this year, and drive demand for Grade A buildings.

Malaysia has not marketed its real estate as well as its regional competitors, observed CBRE Asia chairman William Shee. Other consultants had previously criticised a tendency to changes policies in mid- stream.

As at the end of last year, the average transaction price for Kuala Lumpur offices was 14 per cent lower at RM814 psf from RM950 a year ago. Office capital values are expected to remain range- bound at between RM800 and RM1,200 psf.

Partly as a result of state incentives, more green buildings are coming up, and Mr Boyd said these and ‘really high spec’ buildings could command rentals of RM8.50 to RM9 psf.

Kuala Lumpur currently has an estimated 29.9 million sq ft of Grade A office space.

Source: Business Times, 28 Jan 2010