KL office market remains challenging in 2H18

Concerns on policy uncertainties are likely to hold investors back in the short term


THE office market in Kuala Lumpur (KL) is expected to remain challenging in the second half of 2018 (2H18) without any major catalyst to boost demand in the short term to meet the new supply of close to four million sq ft net lettable area (NLA) by year-end.

A report by Nawawi Tie Leung Property Consultants Sdn Bhd (NTL) stated the figure includes Etiqa Bangsar (380,000 sq ft NLA), Equatorial Plaza (460,000 sq ft NLA) and The Exchange 106 (2.6 million sq ft NLA).

The consultant also said concerns on policy uncertainties are likely to hold investors back in the short term.

“Notwithstanding, rising oil price is leading to more activities and projects in the office market. Hopefully, this can be translated to newer spaces in due course, after the recent spate of consolidation.

“Confidence in the new government to boost economic growth and attract foreign direct investments is likely to produce a positive outlook in the medium term,” NTL stated in the report last week.

There was no new completion of office space in the second quarter of 2018 (2Q18) as the bulk of new completions for the year are expected in 2H18.

NTL said the average monthly rent for prime office has remained unchanged at RM5.98 per sq ft in the quarter, while the average monthly rent for secondary space eased further to RM4.14 per sq ft from RM4.20 per sq ft in 1Q18.

It added that average occupancy rates also remained flat at 80% in 2Q18 with no major upside in demand as businesses continue to be cautious with emerging external risks such as a trade war.

Meanwhile, NTL said some 5,260 high-end residential units are expected to be completed in 2H18, of which 40% will be in the city centre.

The report stated that two developments were completed in 2Q18, bringing a substantial new supply of 1,168 condominium units into the KL market.

The two developments are The Fennel in Sentul East (916 units) and Dorsett Residences in Bukit Bintang (252 units).

“It is still too early to assess the impact of the new government change towards the overall housing market in Malaysia. Market players are interested to witness how the new government will realise its pre-election promises.

“Issues that are critical to the property market such as affordable housing and multibillion ringgit infrastructure projects have been featured remarkably in the government ’s manifesto,” NTL noted.

The consultant said with the new government, more policies related to housing will likely be reviewed and this will bring uncertainties to the market in the short term.

NTL, however, said the industry is expecting a positive outlook provided that the economy can be managed well.

During April to June 2018, the price of high-end condominiums increased by 4.4% quarter-on-quarter (QoQ) to RM784 per sq ft, while rent eased by 6.3% QoQ to RM2.77 per sq ft in a competitive market lacking tenant demand.