Sunday 19 May 2024
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This article first appeared in City & Country, The Edge Malaysia Weekly on October 23, 2023 - October 29, 2023

The overall office sector in the Klang Valley in 2Q2023 showed signs of improvement with positive net absorption in the prime areas of central KL City, KL Fringe and Petaling Jaya, says Knight Frank Malaysia executive director (office strategy and solution) Teh Young Khean when presenting The Edge | Knight Frank Kuala Lumpur and Selangor Office Monitor 2Q2023.

He adds that office occupancy rates in the Klang Valley remained mostly stable in the quarter under review, with KL Fringe and Selangor observing marginal improvements while KL City saw a slight dip following the completion of Sunway Velocity Two’s office tower, which has a net lettable area (NLA) of about 362,400 sq ft.

The office tower is a Malaysia Digital-status (formerly known as MSC Status) and GreenRe Platinum-compliant Grade A office building and offers a typical floor area of about 19,000 sq ft. It is part of the bigger 8.5-acre Sunway Velocity Two master-planned mixed-use development, which is located along Jalan Peel in Kuala Lumpur. The office tower has a covered walkway to Sunway Velocity Mall. It is only 3.8km from KLCC and a stone’s throw away from three MRT stations and two LRT stations.

“During the review period, rental rates in the localities of KL Fringe and Selangor held steady, with marginal movements of 0.1% and 0.4% respectively, while rents in KL City remained flat,” Teh says.

According to Knight Frank Malaysia data, the estimated supply of office space in KL City in 2Q2023 was 58.33 million sq ft, while KL Fringe and Selangor had 30.31 million sq ft and 26.09 million sq ft respectively. This brings the total to 114.73 million sq ft.

Meanwhile, KL City had 2.54 million sq ft of office space under construction, followed by 2.08 million sq ft for KL Fringe and 1.44 million sq ft for Selangor. Therefore, a total of 6.06 million sq ft will be added to the market over the next two years.

Ong: The Klang Valley office market is anticipated to remain resilient with stable rents and occupancy levels (Photo by Knight Frank Malaysia)
Teh: With rising awareness of ESG, demand for green-certified buildings will continue to grow moving forward (Photo by Knight Frank Malaysia)

Some of the notable tenant movements within KL City in 2Q2023 involved two parties moving into The Exchange 106 and occupying a total of 65,000 sq ft; a telecommunications company moved into a 18,000 sq ft office space in Plaza Conlay; and an investment bank, which occupied 40,000 sq ft in IQ Tower @ TRX (Tun Razak Exchange), relocated to another building.

Other notable tenant movements in KL Fringe include that of a technology service company moving into Menara Shell, occupying 70,000 sq ft; a professional services industry outfit expanding its space to 50,000 sq ft in Menara TH One Sentral; an IT service company relocating from a 32,000 sq ft office in The Gardens North Tower to another building; as well as a hearing healthcare company occupying a 19,000 sq ft new space in Menara Southpoint.

Teh shares that the average rental rate for offices in KL City has remained the same since 1Q2023 at RM6.40 psf, with a slight dip in the old CBD (central business district) area from RM4.46 psf to RM4.44 psf. The new CBD and KL City Centre Peripheral saw a slight quarter-on-quarter (q-o-q) improvement of 0.42% and 1.28% to RM7.12 psf and RM3.93 psf respectively.

For KL Fringe, the overall office rental rate increased 0.1% q-o-q to RM5.68 psf, with four out of six sample areas’ rental rates (Damansara Heights, KL Sentral, MidValley City/KL Eco City and Bangsar South/Kerinchi) staying unchanged since last quarter, while Taman Tun Dr Ismail/Mont’Kiara/Dutamas and Pantai/Bangsar increased 0.59% and 0.19% to RM5.10 psf and RM5.06 psf respectively.

Selangor saw the greatest improvement in average rental rate in 2Q2023 of 0.4% q-o-q to RM4.15 psf, with Petaling Jaya, Subang Jaya and Cyberjaya rental rates seeing a q-o-q increase of 0.67%, 0.24% and 0.26% to RM4.47 psf, RM4.16 psf and RM3.72 psf respectively. Shah Alam’s average rental rate remained at RM3.44 psf in 2Q2023.

Absorption rate

The average occupancy rates for KL City offices in 2Q2023 decreased 0.3% q-o-q to 67.5%, mainly contributed by KL City Centre Peripheral, which saw its average occupancy rate dip 7.1% q-o-q to 65% from 72.1%.

“It is [mainly] due to the newly completed Sunway Velocity Two office tower, which has yet to achieve significant occupancy,” Teh explains.

Meanwhile, the average office occupancy rates for KL Fringe and Selangor in 2Q2023 remained stable. There were slight q-o-q improvements of 0.1% and 0.5% for KL Fringe and Selangor, bringing occupancy rates to 85.4% and 73.6% respectively.

Teh also highlighted that the net absorption rate for Selangor’s office spaces in 1H2023 has surpassed that of the whole of 2022. “During this review period, Selangor posted positive net absorption of approximately 105,000 sq ft, mainly due to the commendable occupancy rates of selected office buildings, such as 1 Powerhouse and Imazium @ Uptown.”

Located in Bandar Utama, Petaling Jaya, the 31-storey 1 Powerhouse is a GBI and LEED Gold office building with an NLA of approximately 34,000 sq ft per floor. It is linked to and integrated with the Bandar Utama MRT station and 1 Utama Shopping Mall.

Imazium @ Uptown is a 31-storey Grade A office building located in Damansara Utama, Petaling Jaya. The Malaysia Digital-status building boasts approximately 480,000 sq ft. The office tower is not within walking distance to a public transportation station but there is shuttle bus service every working day to Kelana Jaya LRT station, which is about 10 minutes’ drive away.

Meanwhile, Kuala Lumpur registered a net office absorption rate of about 153,000 sq ft as at 2Q2023, partially contributed by the take-up rate of selected buildings, such as Permata Sapura Tower and The Exchange 106, according to Teh.

Permata Sapura Tower is a 52-storey Grade A office building with an NLA of 671,269 sq ft. Completed in 2021, the building is located in the prime area of Jalan Pinang, KLCC. The KLCC LRT Station is within 15 minutes’ walking distance, as will the upcoming Conlay MRT Station and Persiaran KLCC MRT Station.

The Exchange 106 is part of the 70-acre TRX masterplan. The 106-storey tower has an NLA of 2.6 million sq ft and is benchmarked against buildings in large international financial centres such as London’s Canary Wharf, New York’s Freedom Tower and Shanghai’s IFC.

Lease flexibility

Commenting on the outlook for the rental and occupancy rates of Klang Valley’s office market, Knight Frank Malaysia senior executive director Judy Ong is optimistic about the overall trend moving forward.

“The Klang Valley office market is anticipated to remain resilient with stable rents and occupancy levels, supported by new set-ups and business expansion amid sustained economic growth post-pandemic,” she says.

Agreeing with Ong, Teh elaborates that despite the high existing and incoming supply of office space in KL City, the take-up rate is expected to remain positive, especially for office buildings located within TRX, which has been gaining traction due to its state-of-the-art infrastructure coupled with attractive marquee incentives for qualified companies relocating to the country’s designated global financial hub.

Teh also foresees that the KL Fringe office market will continue to be resilient, thanks to its appealing location with convenient access to amenities and transportation, and attract diverse occupiers seeking quality office spaces. Similarly, the office market in Selangor is also expected to remain stable, with a noticeable increase in leasing activities, particularly for Grade A buildings situated in sought-after areas like Petaling Jaya.

“In the Klang Valley, it is noteworthy that many organisations, particularly MNCs (multinational companies), are adopting hybrid and remote work models. Besides being cost-effective, these emerging work trends enhance productivity and promote work-life balance among employees,” Teh notes.

He adds that co-working spaces are among the beneficiaries of the new working norm in this post-pandemic era as lease flexibility is now an important deciding factor for office space occupiers. “Co-working spaces provide a great option for them to upscale or downsize with minimum hinders while providing a collaborative community to promote networking. In addition, with rising awareness of ESG (environmental, social and corporate governance), demand for green-certified buildings will continue to grow moving forward.”

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