The pace of recovery in the office sector will continue to improve this year in tandem with the uptick in economic activities and improved business sentiments following the country’s transition to the endemic phase on 1 April 2022. Knight Frank, the independent global property consultancy, has released its Real Estate Highlights 1st half of 2022 (“REH”) which features the findings of property market performance across Klang Valley, Penang, Johor Bahru and Kota Kinabalu.
There is currently renewed interest in co-working space as it presents occupiers with highly flexible options to scale their operations up or down depending on their capabilities. The co-working model is also attractive in terms of cost effectiveness and networking, and thus, appeals to organisations of all sizes to consider, in particular, businesses that have implemented Business Continuity Plans (BCP). Moving forward, the unemployment rate is expected to fall further, backed by continued government assistance and improved business prospects.
Judy Ong, Senior Executive Director of Research and Consultancy, Knight Frank Malaysia says that the cumulative supply of office space in Klang Valley stood at circa 111.4 million sq ft as of 1H2022 following the completions of Affin Tower @ TRX, The Stride Strata Office and UOB Tower 2 in KL City and Block G of Empire City in Selangor. By the second half of 2022, another 10 office buildings are scheduled for completion - six located in KL City and two each in KL Fringe and Selangor. Despite growing challenges in the office market, the overall occupancy rate of purpose-built office space in KL City improved to record at 67.2% during 1H2022(p) (2H2021: 66.0%). Similarly, the occupational demand in KL Fringe was also slightly higher at 86.8% (2H2021: 86.1%). However, the overall occupancy rate in Selangor declined marginally during the review period to record at 74.1% (2H2021: 74.6%).
According to Teh Young Khean, Executive Director of Office Strategy and Solutions, Knight Frank Malaysia, there were several notable office-related announcements during the review period. These included TIME dotCom Bhd’s recent purchase of Bangunan KWSP in central Kuala Lumpur for RM62 million. The acquired property is expected to be repurposed into a data centre as it is located just a block away from Menara AIMS (TIME’s flagship data centre which is fully-occupied).
Meanwhile, in line with its relocation to the new headquarters in Menara IQ at Tun Razak Exchange (TRX) and its commitment to the Future of Work (FOW) model, HSBC Malaysia, has moved to a hybrid work model.
During the review period, Air Liquide launched its new headquarters for the Malaysia operations at 1Power House in Bandar Utama, Petaling Jaya whilst Sunway Bhd, unveiled Corporate Suite@19 workspace, which is part of the US$60 million (RM251.2 million) transformation of the group’s flagship five-star hotel, Sunway Resort. The open-plan Grade A office will showcase almost 3,000 sq m of open-plan working space — the largest in Sunway City.
At the same time, in Penang, the existing supply of purpose-built office (privately owned) on the island was recorded at 6.9 million sq ft (4Q2021: 7.2 million sq ft) – the figure was lower by 3.6% due to recategorization by NAPIC while on the mainland, it remained unchanged at 1.6 million sq ft, according to Mark Saw, Executive Director, Knight Frank Penang. He added that the asking rentals of selected office buildings under review in George Town remained stable, ranging from RM2.80 per sq ft to RM5.00 per sq ft per month.
In Johor Bahru, the cumulative supply of privately-owned purpose-built office space stood at 8.4 million sq ft as of 1Q2022, lower by 0.6% on the year (1Q2021: 8.5 million sq ft) due to removal of one property that no longer meets the definition of a PBO due to its dominant use for other purposes. Tan Lih Ru, Associate Director of Knight Frank Johor also iterates that according to NAPIC, Johor Bahru has an incoming office supply of about 2.5 million sq ft. Companies, which have put their office relocation / expansion on hold during the prolonged COVID-19 pandemic, are now revisiting their plans following normalisation of economic activities, as reflected in active tenant movements.
Despite a drop in the overall occupancy rate in Sabah, selected purpose-built offices continue to receive enquiries from SMEs and larger corporates seeking to establish office footprints in Kota Kinabalu. Notable tenant movements during the review period include the entry of Taichung Commercial Bank and MST Golf (retail unit) into Plaza Shell, as well as the entry of Kibing Group into Menara MAA, says Alexel Chen, Executive Director, Knight Frank Sabah.
Rounding off the outlook for the office sector, Sarkunan Subramaniam, Group Managing Director, Knight Frank Malaysia says there is an overwhelming interest for office buildings embracing green technology that are certified by the Malaysian Green Technology Corporation (“MGTC”) which not only supports the agenda of Sustainable Development Goals (SDGs) 2030, but also serves the qualification for tax incentives. To further drive or retain occupancies, landlords are upgrading building specifications with priority on health and safety and are offering more flexible leasing arrangements.
While demand for space is expected to increase with more employees gradually returning to the physical workplace and as more organisations firm up their workplace planning to set clearer targets for office re-entry, rental rates and occupancy levels of office buildings in Klang Valley are expected to remain under pressure in the short term. This is due to the growing mismatch in supply and demand and as more organisations, especially MNCs, embrace the hybrid work model.