Pressure on office rental rates

PETALING JAYA: The abundance of office space supply in 2011 is expected to create pressure on rental rates for this property sub-sector.

Henry Butcher Malaysia Sdn Bhd chief operating officer Tang Chee Meng said there would be a slight weakening in rates in the next three to six months as there was an oversupply of office space in the market.

“A lot of buildings are being completed and there will be an increase in supply. Unless demand picks up, this will put pressure on rents,” he said.

According to a January report by DTZ Research, there was no new addition to the office stock in Kuala Lumpur in the fourth quarter of 2010 (Q410) as some of the expected completions were delayed to 2011.

“There was, however, a reduction in total stock of 500,000 sq ft due to the demolition of two old office buildings for redevelopment,” it said.

It said the office market continued to experience active enquiries but the take-up of space declined due to relocations outside the city and consolidations.

“As a result, the overall occupancy rate of office buildings in Kuala Lumpur decreased from 87.1% in Q3 2010 to 86.4% in Q4 2010.”

According to DTZ, office rents in Q410 continued to face downward pressure, with average prime office rents dropping marginally from RM5.98 per sq ft per month in Q310 to RM5.97 per sq ft in Q410.

Khong & Jaafar Sdn Bhd managing director Elvin Fernandez said he expected office rents to hold in the next three to six months. “I don't think it will rise much. At best, it will hold,” he said.

DTZ said there was about 13.23 million sq ft of new office space in the pipeline between 2011 and 2013, the majority of which was scheduled for completion in 2012.

“In addition, there is an announcement for a proposed 100-storey office by Pemodalan Nasional Bhd of 2 million sq ft that will put further pressure on future competition.”

It said the effort to target 100 multinational companies to have a presence in Malaysia and the proposed commencement of high impact infrastructure projects such as the MRT and the extension of the LRT lines would spur growth in office demand in the long term.

“However, the outlook for the sector is expected to remain soft in the next few years as it will take time to increase demand with these new initiatives while there is a substantial amount of new supply coming up, most of which are of a speculative nature.

“The expected forthcoming general election may cause a short period of uncertainty in the short term as companies may want to remain uncommitted until the political situation is clearer,” said DTZ.

By The Star