Office rental rates to drop in next 12 months


OFFICE rental rates in Kuala Lumpur (KL) business district fell again in the first three months of this year (1Q19), the sixth consecutive quarter that the cost to rent corporate towers had failed to see any increase.

The drop in rental rates for the January through March 2019 period reflects excessive building of such real estate and the absence of tenants filling up this glass office structures.

According to Knight Frank’s AsiaPacific Prime Office Rental Index 1Q19, office rental growth in KL dropped by 1.4% compared to a year ago and a 0.3% slump compared to 4Q18. Office rental rates have been declining for the past six quarters since 4Q17.

In 4Q17, KL prime office rentals did not register any growth followed by -0.3% in 1Q18, -0.8% in 2Q18, -0.2% in 3Q18 and unchanged during the final quarter of 2018.

The situation is expected to remain gloomy as the research house, which specialises in the property sector, has forecast continuous decrease in the next 12 months or four quarters, expanding the doldrums into the commercial property sector to 10 consecutive quarters.

The glut in the office space has largely been blamed for the drop in rental rates.

Knight Frank Malaysia corporate services ED Teh Young Khean said the tenant-led office market continues to be under pressure with looming supply and weak absorption of space.

“Amid heightened competition and growing economic concerns, rents in KL City Centre are likely to fall,” he said in the report released yesterday.

It is estimated that KL has 90 million sq ft of office space and millions more are expected to come into the market, especially with the completion of other grade-A office structures.

The situation will not improve for many quarters as the slowing economy has also made renting in downtown KL more difficult. Companies are also moving out of the KL business district and seeking cheaper alternatives as they aim to trim their fixed business cost.

Besides office space, there are over 43,219 unsold residential units worth RM29.7 billion based on 3Q18 figures.

The situation in the near term remains bleak as there are more than 500,000 units of incoming housing supply, and that will take years for the market to absorb.

The report pointed out that the Asia-Pacific index also fell 0.4% quarter-on-quarter in 1Q19 to 142.6, but it remained at 6.2% year-on-year (YoY).

The quarterly decline exhibits a growth deceleration trend over the past few quarters which recorded a 2.2% and 1.4% rise in 3Q18 and 4Q18 respectively.

Of the 20 cities tracked by the index, 15 recorded either stable, or increased rents — which are less than the 17 reported in the previous quarter.

Knight Frank Asia-Pacific research head Nicholas Holt said the muted start is likely to remain throughout the year.

“Prime office markets in Asia Pacific saw a soft start to 2019 as the sentiment continues to be dampened by uncertainties following major elections across the region, an unresolved Brexit and the re-escalation of trade tensions between the US and China.

“We expect the rental index to rise between 0% and 3% this year, down from 2018’s 7.7% rise, with moderate increases in rents compared to 2018,” he said.

Meanwhile, Singapore’s office rental jumped 23.7% in 1Q19, driven partly by limited supply, while Jakarta saw the biggest drop at 16% YoY, as it has been recording a continuous downward trend since 4Q14.