KL office rental declines further, says Knight Frank
Office

By IZZAT RATNA / Pic By TMR

Prime office rental in Kuala Lumpur (KL) has declined by 0.4% in the second quarter of 2017 (2Q17), a continuation of the downward trend experienced in the past one year.

Property consulting firm Knight Frank revealed in its Asia-Pacific Prime Office Rental Index report that the drop also corresponds to the city’s increasing vacancy rate.

Knight Frank Malaysia corporate strategies ED Teh Young Khean said in a statement that despite the overall decline, a sustained demand is expected in selected established and upcoming decentralised office locations served by the light rail transit and new mass rapid transit lines.

Knight Frank’s Real Estate Highlights report for the first half of 2017 (1H17) also revealed that the average achieved rental rates in both

KL city and KL fringe dipped marginally to RM6.04 per 0.09 sq m and RM5.69 per 0.09 sq m respectively.

However, the average achieved rental rate beyond KL (Selangor) remained stable at RM4.13 per 0.09 sq m.

Grade A office space in KL, continued to command higher asking gross rents, ranging from RM7 per 0.09 sq m to RM15 per 0.09 sq m per month.

As for the decentralised office locations in KL fringe and beyond KL, the overall occupancy rates remained fairly stable at 90.9% (2H16: 91.6%) and 77.8% in 1H17 (2H16: 78.6%),

During the review period, the overall occupancy rate for KL city continued its decline to record at 80.7% (2H16: 82.8%) as the high supply pipeline, while the cumulative supply of purpose-built office space in KL and Selangor stood at about 9.19 million sq m.

Meanwhile, Knight Frank Asia-Pacific head of research Nicholas Holt said the pickup in global trade and domestic demand has negated geopolitical risks to a certain extent, thereby providing strong foundation for the Asia-Pacific prime office markets.

For the first six months of the year, data from the office retail index noted that Bengaluru in India continued to attract occupier interest from the information and technology sector with a 4% increase quarter-on-quarter and 7.1% year-on-year.

Office project delays have plagued New Delhi in 1H17, leading to an all-time low in new completions, coupled with a stable pace of absorption, vacancies have dropped, while rentals have risen.

Mumbai witnessed a fresh office supply of close to 530,000 sq m last quarter, causing vacancy rates to soar by two percentage points.

In China, Beijing’s domestic corporations were involved in most of the leasing activities, especially those from the finance, Internet and high-tech sectors. Rents and vacancies remained stable in Shanghai in 2Q17 with new supply concentrating in Pudong.

No new offices were added to the Guangzhou and Taipei (Taiwan) markets, where vacancy rates dropped and rents rose further. The former will see limited supply of less than 300,000 sq m in 2017, while the latter is witnessing a relocation trend from Grade-B to Grade-A offices.

In Hong Kong, as prime rents continued to edge higher, cost-conscious tenants are expected to continue to relocate to other areas such as Wong Chuk Hang.

South Korea’s Seoul experienced a 3.5% increase in rents supported by healthy absorptions even with new supply and relocation of several large occupiers.

While a positive economic growth bodes well for Japan in Tokyo’s office market, the looming supply influx for the next few years is set to turn the market in favour of tenants.

Despite delivering around 92,000 sq m of new prime supply, Singapore’s prime rents held steady in 2Q17 after a two-year decline, owing to continued demand from sectors such as technology, co-working and professional services.

In Jakarta (Indonesia), rents remained unchanged but a downward trend is expected for the next 12 months due to a huge incoming supply.

Bangkok in Thailand experienced its first rental decline in close to three years, having slid marginally by 0.2% in the quarter. Given a limited supply, a rising trend may resume for the remaining of 2017.

Contrastingly in the Philippines, more than 132,000 sq m of office spaces were added to Manila’s office stock in 2Q17, which contributed to a significant rise in vacancy rate.

A new Grade-A office building boosted the overall office stock in Phnom Penh (Cambodia) by close to one-fourth, exerting upward pressure on both rents and vacancies.

All four Australian cities performed strongly with rising rents and dropping vacancy rates in 2Q17 — Perth continued its rental recovery track, aided by minimal new stock.

Sydney prolonged its rental growth for 18 consecutive months, albeit slowing to 1% compared to 1.4% in 1Q17.

A landlord-favourable market condition in the Melbourne’s central business district has led to a gradual drop in incentives over the past few quarters.

With an improving market sentiment and tight supply, the Brisbane office market is set to extend its acceleration for the next 12 months.