KUALA LUMPUR (July 17): International property consultancy firm Knight Frank forecasts that Kuala Lumpur’s prime office rental and vacancy rates will remain unchanged and stable for the next 12 months.
According to Knight Frank's Asia-Pacific Prime Office Rental Index for the second quarter of 2024 (2Q2024) released on Wednesday, the rental rate for prime offices in KL was US$17.99 (RM84.06) psf per year, a slight increase of 0.2% quarter-on-quarter (q-o-q) and 2.6% year-on-year (y-o-y).
Meanwhile, the tenant-favourable KL market also recorded a 28.7% vacancy rate in 2Q2024, which is a slight improvement from almost 30% in 1Q2024. The international real estate consultancy firm highlighted that the vacancies in Southeast Asia’s emerging markets fell 0.6 percentage points q-o-q, with most markets reporting reduced availability.
Newly launched Grade A projects in KL recorded significant take-up from major international tenants, as occupiers gravitated to high-quality spaces with green accreditation, the report said.
Approximately 90,000 to 100,000 sq m of new prime office space will be developed in KL in the next 12 months. In contrast, the entire Asia-Pacific (Apac) region is set to witness the delivery of over 11 million sq m of prime office stock in 2024, with 60% of this concentrated in Chinese mainland markets.
Apac’s prime office rental rates showed a marginal improvement in 2Q2024 to 3.1% from a 3.2% drop in 1Q2024, mainly due to rent in Chinese mainland cities decreasing by 10.8% y-o-y. “This represents a steeper fall compared to the 10% reduction seen in 1Q2024, indicating worsening market conditions in these areas. [For the Southeast Asian market as a whole], rent growth was generally lacklustre.”
Knight Frank global head of occupier strategy and solutions Tim Armstrong commented in the report, "The current trend reflects a business cycle downturn. Major office sectors such as finance and technology continue to downsize staff strength amid ongoing uncertainty in the business environment. This selective approach will likely keep demand for office spaces restrained.
“Lease renewals will remain popular, while companies may also consider consolidating their office spaces due to falling rents prompting a flight-to-quality move. No doubt, occupiers face a slate of competing factors, balancing the new office culture and ESG (environmental, social and governance) objectives against business considerations.”
On the contrary, 15 of the 23 monitored Apac cities reported stable or increasing rents y-o-y, mirroring the figures from 1Q2024. Australian cities, Taipei, Ho Chi Minh City and Bengaluru saw strong growth in rental rates in 2Q2024. Brisbane recorded the highest q-o-q increase at 3.5% in 2Q2024.
The report said, “This resilience in select markets suggests that some areas are weathering the regional challenges more effectively. Additionally, the regional vacancy rate stabilised at 14.8%, halting an upward trend that had persisted since 3Q2022, indicating a potential levelling off in the market."
Overall, Apac’s prime office sector will remain tenant-favourable in 2024, the report said.
“Amid an ample supply pipeline, landlords will be compelled to remain accommodative to sustain occupancies. Occupiers will focus on lease renewals to weather the current economic uncertainty. With demand lagging, we expect region-wide vacancies to remain elevated for the rest of 2024 and rent growth to stay subdued.”