This article first appeared in City & Country, The Edge Malaysia Weekly on July 10, 2023 - July 16, 2023

The Kuala Lumpur City (KL City) office market saw an improvement in occupancy rates in the first quarter of 2023 (1Q2023), thanks to the resumed movement of traditional industries, according to Knight Frank Malaysia.

In presenting the The Edge Malaysia | Knight Frank Kuala Lumpur and Selangor Office Monitor 1Q2023, Knight Frank Malaysia executive director (office strategy and solutions) Teh Young Khean elaborates that in the quarter under review, the Klang Valley office market saw an overall increase in occupancy amid rising leasing activity throughout all three sub-markets, namely the KL Fringe, Selangor and especially KL City, which demonstrates greater market activity and competition, among others.

“It (the greater office market activity and competition in KL City) led to many office landlords exploring and deploying retention strategies to uphold the occupancies of their buildings. As a result, it offered opportunities for new and existing occupiers [in the KL City office market] to secure attractive rental benefits and further spurred the activity in the market,” Teh explains.

He adds that traditional industries such as oil and gas and their related supply chains resumed movement after a long pause, further spurring market transactions in the quarter under review.

Furthermore, some positive real estate news in 1Q2023 stimulated the performance of the Klang Valley office market, such as international non-profit organisation Ocean Cleanup announcing the opening of its first regional office in Menara Prestige, Kuala Lumpur; Global information services company Gerson Lehrman Group launching a new office in Q Sentral, Kuala Lumpur; global video game commerce company Xsolla opening its largest global office outside of its Los Angeles headquarters in The Vertical Corporate Towers in Bangsar, Kuala Lumpur; and Labuan’s largest serviced offices operator Universal Serviced Offices & Management Ltd (USO) officially opening its co-working/serviced office branch in Menara Pernas in Bangsar South, where it offers 153 fully equipped workstations and 12 workstations in the open/shared co-working space.

It is worth noting that only one new office project was completed in 1Q2023 — the Pavilion Damansara Heights Corporate Towers (Towers 6, 7, 8 and 9) in Damansara Town Centre in KL Fringe.

According to the official website of Pavilion Damansara Heights, it is a mixed-use development consisting of luxury residences, corporate towers and a lifestyle mall. The corporate towers are sold on a floor-by-floor basis with efficient floor plates of 10,301 sq ft per floor, or an en-bloc basis with a net lettable area per block of 76,000 sq ft to 230,000 sq ft.

The towers are strategically located between KL and PJ, served by major highways as well as has a direct link to the recently completed Pusat Bandar Damansara MRT station.

According to Knight Frank Malaysia, the current estimated office supply for KL City is 57.97 million sq ft, while KL Fringe and Selangor have a supply of 30.31 million sq ft and 25.99 million sq ft respectively, bringing the total to 114.27 million sq ft.

KL City will see the completion of an additional 2.9 million sq ft of office space by 2024, while KL Fringe and Selangor expect 2.07 million and 1.05 million sq ft respectively, bringing the total office space under construction to 6.47 million sq ft.

Meanwhile, some of the notable office rental movements in KL City involved a new tenant moving into 30,000 sq ft of space in Exchange 106; two tenants occupying a total space of 28,000 sq ft in TSLaw Tower; and an insurance company expanding to occupy 23,000 sq ft in Menara AIA Sentral.

Teh also observes that a new co-­working space operator moved into Menara 1 Sentrum in Brickfields, occupying 34,000 sq ft of space. Global workforce mobility service providers and software and technology service providers also occupy a total space of 20,000 sq ft in Centrepoint South Tower in Mid Valley City, while a current tenant of Menara Manulife in Damansara is expanding to occupy 20,000 sq ft.

In Selangor, a business consultancy has moved into Imazium in Damansara Uptown, occupying 20,000 sq ft; two tenants are occupying 18,000 sq ft in 1 First ­Avenue, Bandar Utama; and a food product company has moved into Menara 1 Powerhouse, occupying 17,000 sq ft.

Despite seeing more active market transactions, overall KL City office rental rates saw a slight decrease of 0.2% to RM6.40 psf from 4Q2022. However, the overall occupancy rate has improved by 0.3% quarter on quarter (q-o-q) to an average of 67.8%.

Meanwhile, in the quarter under review, market demand for office space in KL Fringe and Selangor remained steady, displaying healthy rental and occupancy levels.

According to data, KL Fringe office rental rates increased 0.7% q-o-q to RM5.67 psf, while overall office rental rates in Selangor increased 0.7% q-o-q to RM4.13 psf.

For occupancy rate, KL Fringe saw a slight increase of 0.1% q-o-q to 85.3% and Selangor recorded an increase of 0.5% q-o-q to 73.1%.

“KL Fringe’s demand is attributed to its well-connected location and premium infrastructure. Coupled with a tight supply of Grade A offices, some MNC (multinational company) occupiers are prepared to accept a slight premium to enjoy the benefits of this locality,” Teh notes.

On the other hand, he highlights, co-working operators continue to increase their footprint through expansion. The flexibility offered by these co-working spaces appeals to many small and medium enterprises (SMEs) and MNCs by providing hybrid work solutions for their employees.

“There is increased interest from MNCs in Enterprise Deals — a service offering from co-working companies that undertake a holistic office solution to provide convenience, agility and amortisation of operating expense (opex) and capital expense (capex) costs to occupiers,” he shares.

Some of the large companies operating from co-working spaces are investment and wealth management firm PhillipCapital, recruitment and consulting company HRnetGroup, global material solutions company Sibelco, media intelligence platform Telum Media, online language learning platform LingoAce, Maybank, Alliance Bank and DHL.

“One of the reasons why more companies are opting for co-working spaces is the flexibility that allows them to scale up and down quickly and economically. In a post-Covid world, companies need to be more agile without having the restriction of a fixed (traditional office) space,” Teh says.

Some of the notable developments in the co-working area in 1Q2023 include Jerry, the affordable co-working space under Colony, which continues to expand its presence in Malaysia. Its latest offerings this year are in Kuchai Lama and Wangsa Maju in Kuala Lumpur.

emart24, the rapidly growing South Korean convenience store chain, has also announced the relocation of its Malaysian headquarters to Jerry Coworking Space in SS15, Subang Jaya. The move comes as part of emart24’s expansion plans in Malaysia, which include the opening of 300 stores over the next five years.

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