Big rise in office space supply

By THEAN LEE CHENG
leecheng@thestar.com.my

It has surpassed 100 million sq ft in Klang Valley but situation remains manageable

KUALA LUMPUR: The supply of office space in the Klang Valley has surpassed 100 million sq ft, making it the largest stock among the neighbouring South-East Asian metropolitan centres, according to property consultants at Jones Lang Wootton (JLW).

Senior vice-president and head of research David Jarnell said the situation remained manageable where supply of office property was concerned but that there could be consolidation of rental levels for the rest of the year.

“There will not be a drastic re-adjustment of rentals although some landlords are offering incentives to prospective tenants in the form of longer rent-free periods while some are not. With the large amount of supply, tenants have a wide range of choices,” he said.

JLW defines office stock as purpose-built, self-contained buildings which are generally five storeys and above.

Jarnell said that in South-East Asia, greater Bangkok had the second-highest office stock, totalling 87.85 million sq ft, followed by the Special Capital Region of Jakarta with 65.66 million sq ft. Singapore, meanwhile, had an office stock slightly less than Jakarta at 64.01 million sq ft.

JLW executive director Malathi Thevendran said the annual supply delivered into the market in 2012 was the second largest (since the turn of the millennium) after 2009. A total of 6.74 million sq ft came into the market last year compared with 7.26 million sq ft in 2009.

The Bangsar/Pantai locality saw the highest growth supply, with a compounded annual growth rate of 29% (1998 to 2012), primarily contributed by the continuing KL Sentral development. The Bangsar/Pantai locality had a total office supply of 11.52 million sq ft as at end-2012.

Another 2.85 million sq ft would be added to the locality this year. The contributors include Menara CIMB (609,000 sq ft), where JLW is the managing agent, and 1 Sentrum (440,000 sq ft), where JLW is the exclusive leasing agent.

Jarnell said the recent trend of strong supply growth came about as a result of the strong and sustainable economic expansion, a growing services sector, good demand for corporate office space and wider-reaching infrastructure and public transportation.

According to Malathi, the trend in supply has been no different than in the 1990s when the gross domestic product was at 7.3% to 9.7% from 1989 to 1997, resulting in high levels of office construction, which peaked in 1998 when the annual supply was at 8.28 million sq ft.

Over the next three years, the Klang Valley development pipeline would comprise a substantial 18 million sq ft of office space.

Jarnell reckoned that better monitoring of developers' intentions by a regulatory body to govern and direct future supply would help ease the growing competition.

Said Malathi, “Developers of office buildings should be fully aware of what they could be up against and act prudently at the master planning stage, particularly the large-scale projects which would need to be phased over many years before they are fully built.”

Intrinsically, assessing the demand drivers is one of the key factors in ensuring sustainable occupancy rates.