Office market to undergo rightsizing, consolidation
Many tenants adapting to flexible working environments and looking to upgrade their spaces into green property
KUALA LUMPUR: The office market is expected to experience rightsizing and consolidation activities this year and extending into 2023, across the wider tenant market as tenants adopt to flexible working environments, practices and look to upgrade their spaces to quality, green property to reverse the downtrend rents.
JLL Property Services (M) Sdn Bhd expects the net absorption (of offices) to remain positive given the improving demand though at a slower than initially expected pace as some companies may hold off on their aggressive expansion plan due to regional and global uncertainties.
“With the coming online of new office spaces in the near-term, vacancy rates may inflate if absorption rate falls behind new supply pace. On the respective submarkets, KL city with relatively high vacancy rates is deemed as tenant favourable as new supply is outpacing demand,” country head YY Lau told Property Take.
However, she said the KL fringe and decentralised submarkets are experiencing better occupancy performance due to the areas being located near residential suburbs and talents pool more readily available, which adds weight to corporations who are shifting towards hybrid work environments.
Lau added that these locations have also become increasingly more connected to public transport infrastructure, elevating the appeal of decentralised areas.
According to its Greater Kuala Lumpur Property Market Monitor Q3 2022 report, Grade A office market occupancy for KL city increased by 67.9% in the third quarter this year (Q3’22) compared with the previous quarter (Q2’22) and its average asking rents decreased to RM7.42 per sq ft (psf) per month. Its major occupiers are oil & gas, finance & banking companies as well as flexible space operators.
KL fringe’s occupancy fell 89.7% compared with Q2’22, while average asking rents rose to RM6.92 psf per month, with major occupiers made up of flexible space operators, business process outsourcing (BPO) & shared-services as well as technology, insurance and pharmaceuticals companies.
The decentralised submarket grew 76.6% compared with the previous quarter and average asking rents posted RM5.59 psf per month. Major occupiers were BPO & sharedservices, flexible space operators, technology and manufacturing-related companies.
Lau said the demand for all three submarkets improved marginally with positive net absorption that was mainly driven by owner occupancies at 52% of market activities in Q3’22. The sector saw active take up of spaces that include employment services firms and the financial services firms.
“The third quarter had seen marginal downward movement in rents that was led by the KL city submarket on account of several buildings lowering their respective rates. In contrast, the KL fringe and decentralised submarkets saw their rents held up by improving demand conditions.
“Opportunities remain for tenants looking to relocate and/or expand within the KL city submarket as landlords are more open to negotiating leasing terms. With new buildings coming online into the market, tenants are on the lookout for modern, contemporary and green spaces, keeping to the flight-to-quality trend,” she said.
KL city comprises Kuala Lumpur City Centre, Tun Razak Exchange and other major commercial developments at the heart of Kuala Lumpur, as well as the old central business district area. KL fringe refers to the prime fringe area of KL, such as Damansara Heights and Bangsar/Pantai, including a few major mixeduse developments such as KL Sentral, KL Eco City, and Mid Valley City. The decentralised submarket comprises a few major developments and areas such as Bandar Utama, Mutiara Damansara, PJ Old Town and Subang Jaya.