Headwinds in the office market thanks to supply glut

22 January, 2018

PETALING JAYA (Jan 22): The Kuala Lumpur office market is likely to remain subdued due to supply glut, with developments such as Tun Razak Exchange (TRX), Merdeka PNB 118 and Sapura Tower nearing completion, said property consultancies Edmund Tie & Co (SEA) Pte Ltd and Nawawi Tie Leung Property Consultants Sdn Bhd in their “Kuala Lumpur Q4 2017: Retail sector was undergoing stress test” report.

This article first appeared in theedgemarkets.com. View source here.

The property consultancy also noted that the recently announced freeze on new office approvals will mitigate the current oversupply to a certain extent, but the impact will only be felt over the medium term.

“This is because the pipeline supply currently under construction remains high and works are not likely to stop completely,” it said.

In 4Q17, the average occupancy rate of offices in Kuala Lumpur continued to decline, dropping to 80.4% from 81.4% due to weak absorption rate in 2017, while average rental rate for prime office space maintained q-o-q at RM6.03 psf per month, and likewise the non-prime buildings at RM4.25 psf per month.

The rents also stayed flat on a y-o-y basis, while capital values of prime office buildings remained unchanged since 2016 at RM933 psf.

“Correspondingly, office yield maintained at around 6% to 6.25%, which has remained unchanged since 2015. In 2H17, there were only a handful of office buildings transacted in Kuala Lumpur. The capital market beyond Kuala Lumpur was similarly subdued with few transactions.

“However, a notable transaction in 4Q17 was the sale of Bangunan Affin Bank, Shah Alam in October 2017 for RM531 psf.

According to the report, TRX has continued to “gain traction” in 2017 with the launch of two new office buildings for Prudential and HSBC Bank beside The Exchange 106, the tallest building in Southeast Asia when completed this year.

“To be ready by 2019, Menara Prudential (NLA: 560,000 sq ft) at TRX is reported to have secured close to 90% pre-commitment as of date,” it added.

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