Dark days ahead for KL office rental market

By DASHVEENJIT KAUR / Pic By TMR

Kuala Lumpur’s (KL) office rental market is expected to remain challenging for the rest of 2018 with no major catalyst to boost demand in the short to medium term, according to a global property consultancy.

Knight Frank LLP in its Asia-Pacific Prime Office Rental Index report for the third quarter of 2018 (3Q18) said the outlook for both KL and Selangor’s office market continues to remain subdued in the quarter.

Knight Frank Malaysia Sdn Bhd ED of corporate services Teh Young Khean said the market would remain sombre despite the rise of shared offices and co-working segments that had provided a slight breather to the oversupplied office market.

The index, which tracks the performance of office rental in 20 cities, showed that KL registered a 2% drop in rental rates for 3Q18 compared to the same period in 2017.

Rental rates also declined 0.2% quarter-on-quarter (QoQ), decelerating from the 0.8% fall seen previously.

“However, forward near- term expectations for rental growth should remain subdued as landlords are still offering packages to attract occupiers,” Teh said.

The London-based property consultancy believes that impact from trade tensions flows through the Asia-Pacific office markets.

Teh said the sound economic conditions are expected to support office demand and drive steady rental growth across the region.

“While economic conditions in the Asia Pacific remain healthy across the region, the ever escalating trade tensions between the US and China has created an air of uncertainty among global business leaders, leading to softer rental growth this quarter as office occupiers delayed their major real estate decisions,” he added.

For 3Q18, Knight Frank’s index grew 2.3% QoQ to 141, slowing slightly from the 2.4% rise seen previously. A total of 18 of the 20 tracked cities reported stable or increased rental growth.

Knight Frank head of research for Asia Pacific Nicholas Holt said with economic trends across the region still tracking positively, the firm maintains its expectation that the markets will continue to see steady growth for the rest of 2018.

In other parts of the region, Tokyo recorded the highest increase in rental decline this quarter at 5.6% on the back of strong occupier demand and limited supply.

Other cities that have recorded accelerating rental growth include Jakarta, Perth, Brisbane, Bengaluru, Mumbai and Guangzhou.