No fear of office space glut at the moment

Boyd: ‘The supply coming in is not unusual’.

DESPITE a huge supply of office space coming into the Klang Valley over the next three years, the situation is controllable and not expected to result in a glut.

According to CB Richard Ellis executive chairman Chris Boyd, some 25 million sq ft of office space is due for completion by 2017.

“Some of this supply might be delayed or postponed. Yes, there’s a lot of supply coming in but it hasn’t reached alarming proportions,” he tells StarBizWeek.

Boyd says there was currently around 96 million sq ft of office space within the Klang Valley.

“On the positive side, there’s still healthy demand for office space, especially within the oil & gas sector and companies wanting to upgrade from old to new buildings.

“The supply coming in is not unusual,” he says.

According to Boyd, occupancy rates of office buildings within the Klang Valley usually hovers at around 80%.

“This inches up a little when a new generation of employees join the workforce – and then it falls down to 80% again (when there’s new supply).

“So, despite the 25 million sq ft of supply coming in, we don’t hear alarm bells.”

Boyd adds that rates are expected to remain stable.

“It’s a wonderful opportunity for tenants to move to modern buildings without paying too much extra in terms of rent.”

Malaysian Institute of Estate Agents (MIEA) president Siva Shanker says 25 million sq ft of office space “is a lot.”

“But do I think it will result in a glut? No I don’t think so,” he says, adding that the situation could lead to a potential overhang.

Siva: ‘More supply is coming in but it will be taken up eventually’.

“This means that some buildings might not be fully taken up, as supply may be a little higher than demand. This is unlike the situation of a glut, where there would be scores of buildings having problems getting tenants.”

Siva also says the level of supply coming in was “normal”.

“There’s more supply coming in but it will be taken up eventually.”

He adds that in the past, the trend was to set up office within the city or as close to it as possible.

“Today this is no longer the trend. Many are moving to suburban locations. A lot of blue-chip companies have accepted that it’s actually alright to work far away from the city and still have a good feel and address.”

Siva cites Bangsar South and Mid Valley as preferred locations that many companies are moving to.

According to property consultant CH Williams Talhar & Wong Sdn Bhd (WTW) in its snapshot on the Klang Valley office sector, a total of about 2.89 million sq ft of office space was completed by the second quarter of 2014.

The incoming supply include Menara Hap Seng, Menara TH @ Platinum Park, Menara Bank Rakyat, The Cascades @ Kota Damansara, Centrus @ CBD Perdana and Menara Pinnacle @ Sunway City.

This, it says, will exert pressure on the current market in terms of performance while rentals are expected to remain generally stable especially in the central Kuala Lumpur area.

In the first quarter of the year, WTW says a drop of about 0.8% in vacancy rate was observed within the Klang Valley, registering at 13.7%.

“Similarly with Kuala Lumpur office buildings, improvement was noted with vacancy rate improved by 0.9% registering at 12.5%.

“In terms of space taken up, Kuala Lumpur registered about 605,300 sq ft with the Klang Valley overall registering about 916,700 sq. ft during the review period.”

It says average prime rentals in Kuala Lumpur remained stable at RM6.80 per sq ft in the first quarter of 2014. 

“Prime average capital value and yield remained at RM1,000 to RM1,100 per sq ft and 6% to 6.5% respectively.” - The Star