KUALA LUMPUR, May 31 — The decline of rental rates for prime office spaces in the city is expected to accelerate in the next 12 months due to pressure from impending supply in the market, according to independent global property consultancy Knight Frank.
The firm in its Asia Pacific Prime Office Rental Index released today said KL rentals fell by 0.7 per cent in 2015 and dropped 0.4 per cent from the fourth quarter of last year to the first quarter of 2016.
“In anticipation of an influx of new supply, landlords in Kuala Lumpur have reduced their asking rents,” Knight Frank said in its report.
On demand, the report said that the technology, media and telecom (TMT) sector has helped take up some of the slack left behind by the oil and gas industry, which has been hurt badly by depressed oil prices.
“There is also anecdotal evidence that start-ups are moving into prime space – demand dynamics which are similarly being experienced in Jakarta,” it added.
By comparison, however, Knight Frank’s report showed that rentals registered more notable declines in neighbouring Singapore and Jakarta last year, at 9.9 per cent and 9 per cent respectively.
“Singapore continued to be mired in a double whammy of significant supply and weak demand,” the firm said.
In March, property consultancy JLL Property Services (Malaysia) Sdn Bhd warned at its KL Property Market Outlook that KL’s central business district (CBD), which covers KLCC, the Golden Triangle and other older commercial areas in the city centre, will be hit by an office space glut by 2019.
While the firm said rental rates will stabilise this year, it added that the trend will likely reverse in 2017 and 2018.
According to data from JLL, new offices totalling 4.8 million square feet will flood the CBD in 2019 when projects like the Tun Razak Exchange’s (TRX) Signature Tower are completed, with an average of about one million square feet of office space expected to be added on annually in the same area between 2016 and 2018.
Malaysia’s tallest skyscraper, the 118-storey Merdeka PNB118, and other integrated projects like the TRX, Bandar Malaysia and KL Metropolis are also slated to be completed at a time when supply is expected to outstrip demand.
KL’s CBD had 33.1 million square feet of office space with vacancy rates of 13.5 per cent, according to JLL’s data from the last quarter of 2015.
Bank Negara Malaysia deputy governor Dr Sukhdave Singh recently warned that the country’s economy was at risk due to an oversupply of commercial space developments within the next two years.
He also noted that the same trend has caused market complications in other countries.
