PJ and Bangsar South offer alternatives, while cheaper areas like Kota Damansara are becoming attractive

by MARK RAO / pic by TMR FILE

COMPANIES operating in the Kuala Lumpur (KL) city centre could slash their monthly rental cost expenses by as much as 60% if they shift to the outskirts of the capital, as rental prices continue to slide and overbuilding takes a toll on commercial properties.

Businesses are starting to evaluate their cost structures and seek cheaper alternatives as competition for tenants heightened and the availability of rental spaces skyrocketed in recent years.

Petaling Jaya (PJ) and Bangsar South offer alternatives, while cheaper areas like Kota Damansara and south of the capital are turning into attractive locations.

IQI Realty Sdn Bhd agent Citta Cheng said on average, office rental rates in the KL city centre ranges from RM7 to RM9 per sq ft compared to PJ and Bangsar South, which average between RM4 and RM5 per sq ft.

“Overall business conditions are poor, and many companies are scaling down and looking outside KL to places like PJ and Bangsar South for more competitive rates.

“High competition, weak business conditions and oversupply are forcing office rental rates to adjust accordingly,” Cheng told The Malaysian Reserve (TMR).

The highly rated KL business district has attracted companies and corporates to land there as their base.

But the recent, almost free-falling drop in rental rates due to the hundreds of thousands of new tenable space had forced property owners to fight for a slice of the rental market.

KL’s central business district’s (CBD) rental market has also suffered in the last few years.

Cheng said office rentals in today’s market are typically 15% to 40% cheaper, with rates in the CBD also having fallen below previous highs.

A check by TMR showed that businesses can save more than four times in rental cost by shifting their operation about 22km outside the city centre.

Chester Properties Sdn Bhd agent Cheah Kong Leong said the average rental rates differ in Kota Damansara, but the average would be at RM1.80 per sq ft.

“If it (office space) has been empty for some time, the owners are more willing to offer lower rental rates to generate revenue instead of paying maintenance for an idle property,” he said.

An online listing showed a 1,000 sq ft office space in Kota Damansara is priced at RM1.82 per sq ft or about RM1,820 per month.

An office with the same size in Jalan Tun Razak or Jalan Sultan Ismail is priced at RM7.50 per sq ft or RM7,500 per month.

For a business that is weighing on cost reductions, the move translates into RM5,680 in savings or almost RM69,000 a year for a 1,000 sq ft office space. The cost will be lower for larger companies which require a larger business space. Kota Damansara is less than a 30-minute drive from the CBD.

The amount saved can pay the salary of two degree-holding and one diploma-holding fresh graduate(s) earning between RM1,300 and RM2,180 per month respectively.

Offices in Bangsar South are also competitive. Online listings showed that a 1,200 sq ft

office space is priced at around RM4,200 or RM3.50 per sq ft monthly. The same space in KL’s CBD would cost up to RM9,000 every month.

The findings of the Valuation and Property Services Department and Finance Ministry showed the average rental rates within the KL city centre going for RM54.19 per sq m (RM5.03 per sq ft) in the fourth quarter of 2018 (4Q18).

Rental rates have been dropping since 2017 due to the overbuilding of such properties.

Knight Frank’s Asia Pacific Prime Office Rental Index revealed that prime net headline rent for offices in the KL city centre dropped 1.4% year-on-year to RM5.80 per sq ft in 1Q19 — the sixth consecutive quarter where the index either declined, or came in flat.

Cheah said the commercial office space glut can be traced back to between 2010 and 2013 when the property market was at its peak and developers wanted to capitalise on the boom.

“It typically takes four years for a project to go from the drawing board to being handed over. As these properties were launched in 2017, they are now caught in the market downturn and struggle to find buyers,” he said.

Cheah said commercial areas that have limited built-up spaces such as Bangsar South, tend to fare better as the owners have greater control over supply.

Offices in areas that are well-connected and have sufficient amenities — including food and beverage outlets within the vicinity — are the most in demand, he said.