Professionals warn there is too much of office space in the Klang Valley

By THEAN LEE CHENG

PETALING JAYA: Several property professionals polled are sounding
warning bells about the high volume of prime office space in the Klang
Valley and its coming supply in the next couple of years.
Six
out of the eight spoken to were reluctant to call it a glut because
that would be “too simplistic”, as the office market was not a
homogenous one.
One called it “a milestone”, with the Klang
Valley being home to more than 100 million sq ft of office space,
excluding federal and state government office complexes and older
buildings where parts had been sold on strata.
Savills Rahim & Co's
James Goh said there were three main issues facing the Klang Valley
office market today the volume available, old buildings that did not
meet the standards required by modern international tenants and
pressures on rental.
The general office yield for average Grade
A buildings today was 6% compared to between 7% and 7.5% pre-2008
global financial crisis, said Goh. There would be pressure on rental as
more office developments were completed, he added.
“Landlords
need to bite the bullet and upgrade or risk becoming obsolete. They
have to accept the new market reality (that there would be pressure on
office rental). Those who adapt quickly would fill up their buildings
faster,” observed Goh.
Khong & Jaafar group of companies managing director Elvin Fernandez (pic inset) said the concern expressed by property professionals should be taken positively by both stakeholders and the public.
“These
opinions should put them on the path of corrective measures rather than
remaining ignorant, or ignoring the current trend,” he said.
The
average overall occupancy level today in the Klang Valley is about 75%.
However, some prime office buildings with the asking rental of RM7 per
sq ft in the city were only half-full, according to Serena Yeong, Essel
Properties' head of corporate services.
While the Petronas Twin
Towers and Menara 3 Petronas are fully occupied, that development
should not be used as a measure for other buildings in the city as its
location comes at a high premium. Nonetheless, that development took a
while to be filled and the newer projects will have to muddle doggedly
through that phase.
“There are many downtown buildings that are
struggling to get tenants. There is a lot of migration to outside KL
city,” she said. Areas like Bangsar South, Petaling Jaya and Subang
Jaya were enjoying 80%-90% occupancy, she added.
She said there was also a lot of supply entering the market in KL Sentral.
DTZ Nawawi Tie Leung executive director Brian Koh (pic),
meanwhile, said most of the buildings entering the market or in the
construction process today were Grade A buildings, meaning that most of
them were in Kuala Lumpur.
But the oversupply situation was an issue that affected the office space market across the board.
“It
is a concern to landlords and those in the property profession, given
that occupancy is likely to trend downward because of oversupply.
“Landlords would have to provide more competitive terms to tenants, which would affect their bottomlines.
“It
also affects the banking and finance sector because banks are funding
the development and construction of these properties,” he said.
Koh suggested a certain measure of restraint on the part of the banking and lending sector in view of this.