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Monday, 17 July 2017

(The Star) KL office market glut to last three more years

PETALING JAYA: The current supply glut in the Klang Valley office market is expected to stretch for at least three more years.

Savills Malaysia Sdn Bhd chairman Datuk Christopher Boyd said the office market may only start experiencing a “pick-up” beyond 2020, on the back of rising demand for new, “improved” office space.

He emphasised that the incoming supply of offices comprised buildings that were far superior than its predecessors – making them appealing to investors.

“The new buildings that are coming in are a lot better than the ones that came in back in the 70s... the working environment that the new buildings provide today in terms of infrastructure and technology is fantastic,” he said when contacted by StarBiz.

Boyd said the absorption rate for new office space in 2016 was 580,000 sq ft, compared with 330,000 sq ft in 2015.

“In a good year, it ranges between two million and three million sq ft per year.

“The reason for the drop is because major tenants within the oil and gas sector and those that serve them have dropped.

“There have been fewer investments in this sector since the drop in oil prices.”

On a brighter note, Boyd said the incoming supply of office space did not tantamount to “ridiculous numbers.”

“It’s not reached crazy numbers. It’s a cycle...an evolution process, albeit a painful one...but give it time and the market will self-correct.”

Boyd said more than 15 mil sq ft of space was expected to enter the Greater Kuala Lumpur (GKL) market within the next three years.

“In the next three years, we expect supply to grow further at a compounded annual growth rate (CAGR) of 3.80%.

“Significant completions in 2020 and 2021 will include Lot 91 & Lot 185 in KLCC, LendLease Lifestyle Quarters & Plot 10.17 in TRX. This will add on 3.88 mil sq ft of office space in these two locations alone.”

Boyd said the existing supply of office space in GKL stood at 118.4 million sq ft of net lettable area as of the first quarter of 2017.

“In terms of space, we are bigger than Bangkok, Jakarta and Manila,” he said, adding that the CAGR of supply in the past 11 years recorded was at 5.28%, with an average annual addition of 4.65 mil sq ft.

Boyd said the average vacancy rate in GKL had been steadily growing from 8.1% in 2008 to 20.6% in 2016.

“This is largely attributable to the gradual increase in vacancy at the back of growing new supply over the years.”

Boyd said the average vacancy rate in GKL increased to 20.9% as of the first quarter of 2017.

“This is due to the higher average vacancy rate in Selangor (26.5%) and KL suburbs (22.6%) with the large amount of new completions in the region.

“With upcoming supply in the next two years (estimated more than 10 mil sq ft), we expect the overall vacancy rate to rise further.”

GKL refers to an area covered by 10 municipalities surrounding Kuala Lumpur, each governed by local authorities, namely Kuala Lumpur City Hall, Perbadanan Putrajaya, Shah Alam City Council, Petaling Jaya City Council, Klang Municipal Council, Kajang Municipal Council, Subang Jaya Municipal Council, Selayang Municipal Council, Ampang Jaya Municipal Council and Sepang Municipal Council.

According to the Valuation & Property Services Department’s Commercial Property Stock Table for the first quarter of 2017, there was an existing stock of 435 purpose-built offices measuring 94 million sq ft in Kuala Lumpur, compared with 431 offices measuring 89 million sq ft in the previous corresponding period.

As at the first quarter of this year, there was an incoming supply of 21 purpose-built offices measuring seven million sq ft in Kuala Lumpur, compared with 20 offices measuring 7.8 million sq ft in the first quarter of 2016.

Planned supply of offices in the first quarter of 2017 stood at 14 offices totalling 8.7 million sq ft compared with just seven offices measuring 6.3 million sq ft a year earlier.