Commercial segment: Klang Valley in oversupply

In an article by TheStar.com.my, Jones Lang Wootton’s in-house research revealed that a total of 13.332 million sq ft of office space, in the form of 33 office buildings, is scheduled to be completed in the Klang Valley over the next 30 months.

It also said that almost half of this or 6.586 million sq ft is scheduled for completion in the second half of 2018. (This is definitely a WOW… this is a lot. 6.5 million is equivalent to the office space of six Paradigm Malls).

Its senior vice-president and head of research David Jarnell said there was already a growing trend of developers deferring completion dates, and based on historical trends set in oversupplied markets, it is anticipated that 50% to 60% of this space could be deferred to 2019 or beyond.

Perhaps deferring completion is a good thing for both the developer and the market as well. Maintenance has to start when building is completed, regardless of whether its tenanted or not.

As for the outlook, it’s not that gloomy.

In the article, an analyst was quoted as saying that occupancy rates for the purpose-built office sector have remained healthy.

He said, “The occupancy rates of office buildings within the Klang Valley usually tend to be just over 80%. It goes up when a new generation enters the workforce – and dips when new supply comes in.”

He also said that there was a rising demand for good (grade A) office buildings from multinational companies.

He added, “An example is the Tun Razak Exchange (TRX), which has been successfully wooing investors.”

Besides, companies are also more open to having their operations away from the city. He said, “The trend before was to be strategically located in the heart of the city or as close to it as possible. But not anymore. Today, a lot of companies are comfortable with working far from the city.”

He gave two locations out of the city centre that were popular – Mid Valley and Bangsar South.

Where businesses are concerned, some oversupply of office space is much more preferable than a shortage.

Every time there’s a shortage, the cost of doing business goes up and usually does not fall after that. Not such an awesome thing to have for Malaysia. Just look at the cost of doing business due to office rental in some expensive countries. And yes, even neighbouring countries.

Remember, when times are good, many new businesses start and they need space to operate. It’s not possible for developers to build new office space within a few months when there’s demand.

Besides office space is also a major consideration for foreign companies when they decide which country in Asean to operate in. Let’s have enough choices for them.

This article first appeared in kopiandproperty.com

Charles Tan blogs at property investment site kopiandproperty. He dislikes property speculators and disagrees that renting is better than buying. He thinks it’s either property or poverty. He is presently the CEO of an auction house auctioning assets beyond just properties.