Grade A office rental downtrend to remain

Malaysia is expected to record a new supply of Grade A office completion in 2H21

by ASILA JALIL / Pic by BLOOMBERG

MALAYSIA’S Grade A office rental space is expected to remain in the downward cycle this year amid the lockdown although rent stabilises in the latter half of the year.

CBRE Asia Pacific (CBRE Apac) head of occupier research Ada Choi said Malaysia’s office rental sphere downward cycle would be mild this year, hovering around -5%.

“For Malaysia, we are expecting a mild decline for the whole year of 2021. It is in lockdown and we have seen some improvements over the past few weeks.

“We expect that the second wave would be under control relatively quickly and I do see improvement happen but it would need to first be reflected in the demand then the recovery in the rental assets would take place,” Choi said in a webinar hosted by Maybank Kim Eng yesterday.

Malaysia is expected to record a new supply of Grade A office completion in the second half of the year (2H21), according to a CBRE Research report.

The research firm forecasted a new supply of Grade A office of between 30% and 40%, or four million to six million sq ft net floor area.

Choi, who is also CBRE Apac head of data intelligence and management, said this new supply would delay the office market recovery as demand is still insufficient to offset supply.

In the Apac region, she noted that investment activity in commercial real estate is picking up pace with volume is forecasted to increase by 10% to nearly US$120 billion (RM496.8 billion).

She said investors are interested in the offices and logistics sectors.

She also said the pandemic had strengthened interest in niche sectors such as data centres and cold storage.

CBRE Research reported that net supply for Apac Tier 1 colocation data centre markets in 2020 increased to 25% compared to 10% in 2019, although vacancy has been declining.

For Malaysia, Choi said more infrastructure build-up is needed before more investments for data centre purposes can take place.

“When investors and operators choose a place to set up their data centre, issues such as supply, electricity and stability and data sovereignty will crop up.

“If you are storing the data for corporations that have to be in Singapore, there may be some regulatory issues, particularly if they are in the financial sector. It is less likely they can move their data centre elsewhere,” she said.

Meanwhile, the research found that over 70% of respondents want employees to work at the office while only 11% of the respondents are required to work from home, based on a survey involving 106 respondents in the Apac on leadership attitude towards working locations.

About 50% of the respondents agreed that workplaces would encourage better employee engagement.

Choi does not view the growing hybrid working culture as a red flag towards the office space industry.

In fact, she said it would provide a better solution for tenants.

She added that a hybrid working approach may disrupt the revenue stream for landlords as they would have to charge tenants on an hourly basis now instead of issuing new leases.

“But it is also opening doors for new revenue streams for landlords as they can provide meeting space or broadcasting room for companies to hold their AGM.

“These can capture those potential revenues for the landlords and it would be an interesting area to observe,” she said.