KUALA LUMPUR, Sept 26 — Longer rent-free periods and cheaper leases may soon be a norm as property firms contend with stiffer competition for office tenants due to a surfeit of floor space, industry experts said today.

Sarkunan Subramaniam, managing director of real estate consultancy Knight Frank Malaysia, said that while advertised rental rates for office space would likely remain stable for the next two years, rent-free periods may be increased from two to six months.

“In 2008, rent-free periods of six months was not uncommon,” Sarkunan told a news conference, after a seminar titled “Greater KL office space conundrum: Winners and losers” organised by Malaysia Property Incorporated (MPI) here today.

Sarkunan said that at the moment, rental for Grade-A office space in the city ranged from RM7.50 to RM12 per sq ft.

Veena Loh, MPI general manager, similarly said that a more competitive market would put pressure on rentals of office space.

“In future, occupancy rates could come down. If you’re in an old building and tenants go to a new building, you might want to lower your rent,” said Loh at the same press conference.

Office space in the Klang Valley jumped from 69.56 million sq ft in 2003 to 104.66 million sq ft this year, according to Elvin Fernandez, managing director of real estate agency Khong & Jaafar.

According to notes distributed to the press by MPI, Fernandez said in the closed-door seminar that the occupancy rate in the Klang Valley has remained stable for the past decade. It increased by 2.67 per cent as of the first half of this year to 77 per cent.

There has been concern that mammoth developments planned for the city centre, such as the 118-storey Warisan Merdeka and the Tun Razak Exchange (TRX) financial hub, could trigger a property crash here in the vein of the Dubai market collapse.

But Sarkunan was dismissive of such worries happening to the Kuala Lumpur commercial property market.

“It’s the decision of the local conglomerate whether there’s a need to fill the building,” he said.

He added that in Warisan Merdeka’s case, the developer was also providing the bulk of demand for floor space in the building.

“The Merdeka Tower - half will be occupied by PNB themselves,” added Sarkunan, referring to GLC Permodalan Nasional Berhad (PNB).

Sarkunan further pointed out that the construction of the Kuala Lumpur City Centre (KLCC) that includes the iconic Petronas Twin Towers in the 1990s did not significantly affect the property market here, despite early concerns.

Fernandez said that incoming future supply of office space for the Klang Valley is 21.96 million sq ft, out of which 2.24 million is planned supply.

This, however, excludes nine million sq ft of planned supply for the TRX.

Loh said that the TRX is necessary, pointing out that there is currently no financial district in the city.

“If KL wants to be a premier city, it must have a financial district,” she said.

Last week, a CIMB Bank report warned that KL could be heading towards a Dubai-style crash as both major cities have a penchant for building iconic “tallest” towers and Grade-A office space.

The report, published on CNBC’s website, noted that the current construction boom, particularly for commercial office space and big-ticket projects like the Warisan Merdeka tower, would likely create an eventual oversupply and overhang of properties.

Sarkunan, however, called the report an “over-exaggeration”.

“Our office space supply is going to get competitive; it’s not in a critical position like in Dubai,” he said.