A FLURRY of activity in the Klang Valley office market, in terms of completed stock and take-up, was noted by Jones Lang Wootton (JLW) at the end of 2012.
According to JLW's David Jarnell, senior vice president and head of research, “the Klang Valley's office market supply (prime and secondary stock) has registered an historic milestone by surpassing 100 million sq ft.
In Q4'12, seven office buildings in the Golden Triangle, the decentralised area, KL Sentral in Bangsar Pantai, Petaling Jaya and Putrajaya, totaling 2.23 million sq ft, were issued with certificates of completion and compliance and the office stock accumulated to 100.694 million sq ft.”
JLW defines office stock as purpose built self contained buildings which are generally above five storeys. Federal and state government office complexes, which are solely used by the Government and older buildings where part of the space has been sold on strata are excluded from JLW's monitored stock.
Malathi Thevendran, executive director of JLW, attributes the strong supply growth to steady and sustainable economic growth and a vastly growing services sector, integrated mixed use developments and the improvement in public transportation.
JLW monitors many office locations and the highest supply growth is the Bangsar/Pantai locality which experienced a compounded annual supply growth of 29% (1998 2012) primarily contributed by the continuing KL Sentral development in which Malathi has been involved since the master planning stage in 1995.
Menara CIMB, which is managed by JLW was completed in Q1'13 and 1 Sentrum, for which JLW is the exclusive leasing agent, will be completed later in the year, are two prime office buildings adding to KL Sentral's office stock in 2013.
In 1998, the Klang Valley's office stock was approximately 50 million sq ft and over the past fourteen years, this has grown significantly. David comments, “the stock has grown at an average of 3.62 million sq ftper annum since 1998”. Driven by strong demand, mainly from Malaysian companies and international companies already represented in Malaysia, take-up of office space in 2012 totaled 3.26 million sq ft (61% above the net average take-up over the past fourteen years of 2.03 million sq ft per annum).
Interestingly, comparing the Klang Valley with other metropolitan areas in the South-East Asian region, it has the largest office stock. Greater Bangkok has approximately 87.85 million sq ft with a similar amount of central business district accommodation at 45.42 million sq ft compared with the Klang Valley's 45.73 million sq ft.
The third largest office stock in the region is the Special Capital region of Jakarta, which has 65.66 million sq ft of offices, 47.36 million sq ft of which is in the CBD. Primarily constrained by land availability, Singapore has an office stock slightly less than Jakarta at 64.01 million sq ft.
Over the next three years (2013 2015), the Klang Valley office market will expand significantly with a vast incoming supply. If projects are completed on schedule, 17.97 million sq ft could be delivered into the market over the next three years.
On a regional basis, this three year supply pipeline is only surpassed by the Special Capital region of Jakarta, which is estimated at a huge 31.2 million sq ft. Strong demand from business expansions in the banking, insurance, oil and gas and the mining and natural resources business sectors is driving construction activity. Metro Manila, in the Philippines, has the third largest three year pipeline at 16.05 million sq ftall of which is Grade A accommodation.
There is just over 21 million sq ft of vacant office space, a considerable amount even though the market continues to show good take-up. Secondary accommodation is generally quite stable in terms of stock and average occupancy rate but the newer Prime Grade A buildings, even in the more established commercial locations, are placing downward pressure on the average occupancy rate.
David points out that some landlords of the newer buildings, which are competing for occupiers are offering more incentives such as longer rent free periods to secure tenants. He believes however that “rental rates for Prime Grade A buildings with good occupancy will be stable in 2013, particularly for those which are both green building and MSC Cybercentre certified and benefit from being in highly accessible locations”.
David reckons better monitoring of developers' intentions by a regulatory body to govern and direct future supply would help to ease the growing competition between landlords.
Malathi concurs “developers of office buildings should also be fully aware of what they could be up against and act prudently at the master planning stage, particularly the large scale projects which will need to be phased over many years before they are fully built out”.
David also adds that “KL is vying to become an international financial centre supported by the Government's Economic Transformation Programme and brand new infrastructure including rail networks such as Greater KL's Mass Rapid Transit (MRT) and the announcement of the KL-Singapore high speed rail link.”
He anticipates that the proposed High Speed Rail link between KL and Singapore will have a positive impact on the movement of people, which will help to spur Malaysia's tourism, business and trade sectors.
The property sector would also benefit from more international demand (especially from Singapore) due to KL's enhanced accessibility.
In the office market, for example, more foreign companies will consider locating their businesses in KL due to the relatively low costs of operation and better opportunities to attract a wider range of workforce.
Thus the Klang Valley will continue to be a key target for both Malaysian and foreign investors and our team of professionals is in a position to help our clients take advantage of the tremendous investment opportunities which are available.”
David Jarnell is the senior vice-president and head of research in Jones Lang Wootton and Malathi Thevendran is executive director - The Star
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