Office space: Oversupply, yes, crash, no, says real estate firm


KUALA LUMPUR: The oversupply of office space in the country is expected to continue in 2018.

However, it is unlikely to cause the property market to crash, according to real estate advisory firm Savills (Malaysia) Sdn Bhd.

The Edge Financial Daily quoted Savills Malaysia executive chairman Christopher Boyd as saying at a press briefing to unveil the firm’s top property picks for 2018 that the market had found “some level of stability” although it was weak.

“It is highly unlikely to drop sharply in 2018, but developers will continue to offer rent-free periods and other concessions to remain competitive. Office rentals have been remarkably resilient; we don’t anticipate any crash in 2018.”

The total marketed office space in the Klang Valley now stands at 120 million sq ft. He described it as very sizeable.

Boyd said Savills Malaysia had estimated the take-up rate for 2017 was about 1.2 million sq ft, compared with 700,000 sq ft in 2016, according to The Edge Financial Daily.

Boyd said overall occupancy in the Malaysian office market had dropped to about 70% currently but that he had seen occupancy go below 70%, and then recovering.

“What we are seeing now is, well-established tenants in an existing building for six or maybe nine years are able to move into newer buildings, and take advantage of better quality and higher specification office buildings without paying very much more rent. This is very good for the industry as a whole.”

Boyd said some older buildings, such as those over 30 years old, and with lower density, were ripe for redevelopment.

“Tenants are willing to pay a little bit more for better spaces, and we will see a gradual reduction of old stocks as old buildings are redeveloped. Bear in mind that some of the older buildings were built in very low density or plot ratio, perhaps four or five times to site area. Whereas now, particularly in (Kuala Lumpur’s) Golden Triangle area, it is not unusual to see approvals for twice that density or more.”

Regarding residential properties, he said new developments were taking place at a very low pace. This is fine, because demand is also quite subdued.

On retail properties, Savills Malaysia deputy executive chairman Allan Soo said established malls would continue to enjoy high rental and occupancy rates in 2018.

“Occupancy rate at established malls is easily in the high nineties or 100%. For newer ones (malls), many of them are struggling at 60% and below. It will take them some time to come up to even 80%,” he was quoted as saying by The Edge Financial Daily.