Office Building Owners To Contend With Rising Vacancy, Falling Rents

·2-min read

With the increase in COVID-19 cases in Malaysia and oversupply in office space, owners of office buildings within the Klang Valley will have to face a challenging environment in the months ahead.

Property consultancy firms Raine & Horne and VPC Alliance expect them to be continually plagued by rising vacancy and falling rents, reported Free Malaysia Today (FMT).

“With the rise in supply and unstable demand, the vacancy rate is expected to increase,” said James Wong, Managing Director of VPC Alliance, as quoted by FMT.

Aside from oversupply, Malaysia’s office market is also faced with foreign direct investment bypassing the country and firms moving to other parts of Southeast Asia, said James Tan, Associate Director at Raine & Horne.

For years, the National Property Information Centre (NAPIC) and property consultants have warned of the office space oversupply in Malaysia, particularly within the Klang Valley. NAPIC’s Property Market Report 2020 even showed that occupancy and rental rates have been on the downtrend since 2016.

“Rents are likely to drop (further),” said Tan as quoted by FMT.

Wong noted that the Klang Valley office market is now faced with two situations – tenants asking for a 5% cut in rent once rent reviews arrive, and owners of new buildings trying to lure tenants with below-market rent.

According to the FMT report, a source revealed that BBCC office owners have been luring companies to relocate there with lower rents. Average rent at BBC range between RM5.50 and RM6 per sq ft (psf) – way lower than the Grade A office rent of RM7.50 to RM8 psf four to five years back.

A leasing manager with over 30 years in the sector described the scenario as a “tug-of-war between tenants leaving and coming”.

“If a tenant has been occupying a building for 10 to 12 years and the lifts constantly break down, he might as well go to a new building. But he will have to put out money to fit it out. This is a capital expenditure and many tenants are reluctant to fork out money when they are trying to conserve cash flow,” she explained.

Wong, however, noted that some landlords are offering a two-month rent-free period, while partly subsidising fitting out costs.

“Better facilities, lower rent. New owners will have a tough time,” he said.

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