Developers unfazed by the influx of commercial supply as new trends drive the market

KUALA LUMPUR: There will be a significant amount of new commercial supply entering the market both this year and in 2024, but developers are unfazed since new trends are driving the need for office space. 

One such trend is the repurposing or improving of outdated office buildings in prime locations into assets for the hospitality, healthcare, or education sectors, said Zerin Properties founder and group chief executive officer Previndran Singhe.

Previndran said that concurrently, there’s a ‘flight to quality’ occurring, with tenants increasingly preferring high-quality, environmentally sustainable buildings that offer flexibility and contribute to a “live, work, play” ecosystem. 

“Buildings that fulfil these criteria will experience a surge in demand. However, the success of new office projects heavily relies on developers’ ability to accurately anticipate and meet the demands of potential tenants. 

“Flexibility in lease terms, adaptable designs, and advanced sustainability features can maximise the appeal of new office spaces and increase their likelihood of success,” he told NST Property.

“While some developers may have clients secured through pre-leasing agreements, the overall demand for new office spaces is subject to market dynamics. Developers usually conduct market research and feasibility studies before commencing construction,” he said.

Previndran said there are several key developments scheduled for completion in Greater Kuala Lumpur over the next two years.

However, the exact amount of new office supply coming in this year and in 2024 would require a thorough analysis of various ongoing and planned projects, he said.

The new key developments include Merdeka 118 (NLA: 1,650,000 sq ft), PNB 1194 (160,000 sq ft), Aspire Tower (NLA: 587,000 sq ft), The MET Corporate Towers (NLA: 600,000 sq ft), Pavilion Damansara Heights Offices (NLA: 1,284,000 sq ft), Sunway V2 Tower (NLA: 391,400 sq ft), Oxley Towers: Signature Offices (NLA: 346,000 sq ft), and PHB Bangsar 61 (NLA: 548,000 sq ft).

KGV International Property Consultants executive director Samuel Tan said commercial real estate in Malaysia is showing signs of recovery. 

“We think the real estate market will start to rebound more clearly by 2024. As it stands, more investors are already visiting Malaysia to look at opportunities. These include looking for manufacturing space and homes,” he said.

Supply and demand for new commercial space

The cumulative supply of office space in Klang Valley stood at circa 114.7 million sq ft as of the first half of 2023 (1H 2023), following the completion of two buildings offering a total of 0.7 million sq ft of space, according to Knight Frank Malaysia. 

KL City witnessed the completion of Sunway V2 Office Tower (Velocity 2), a 27-storey office building offering circa 360,000 sq ft of net lettable area (NLA) with a typical floor plate of circa 19,000 sq ft. It forms part of the 8.5-acre masterplanned mixed-use development of Sunway Velocity 2, which is located along Jalan Peel in Kuala Lumpur.

Meanwhile, KL Fringe observed the completion of Towers 6, 7, 8, and 9 of Pavilion Damansara Heights Corporate Towers. The corporate towers offer a total NLA of circa 380,000 sq ft and come with typical floor plates ranging from 9,000 sq ft to 11,000 sq ft.

By the second half of 2023, Knight Frank expects another five office buildings to be scheduled for completion: two in KL City, two in KL Fringe, and one in Selangor. Upcoming completions in KL City are PNB 1194 and Merdeka 118, while in KL Fringe, they are Mercu Aspire, and Pavilion Damansara Heights Corporate Towers (1, 2, 3, 4, and 5). 

Knight Frank said the impending completion in Selangor is Office Towers @ Atwater. Collectively, these completions will add circa 3.5 million sq ft of space to Klang Valley’s existing cumulative office stock.

Meanwhile, the overall occupancy rate of purpose-built office space in KL City improved to 67.7 per cent during 1H2023 (2H2022: 67.5 per cent), according to the firm.

In contrast, the occupational demand in KL Fringe was lower at 85.4 per cent due to the influx of new supply introduced into the market (2H2022: 86.1 per cent). 

Meanwhile, the overall occupancy rate in Selangor was resilient, recording a record high of 73.4 per cent (2H2022: per cent) during the review period.

There were several notable office-related announcements during the review period.

Sentral Real Estate Investment Trust (Sentral REIT) plans to acquire the 27-storey Menara Celcom Digi in Petaling Jaya from Malaysian Resources Corp Bhd (MRCB). The office tower, erected on leasehold land, has a gross floor area of 1.06 million square feet, including three levels of basement parking with 788 car parking bays and 287 motorcycle parking bays. 

Menara Celcom Digi is currently leased to Celcom Bhd with a lease term of 15 years, which may be extended automatically for another two terms of three years each. MRCB’s wholly-owned unit, Puncak Wangi Sdn Bhd, will negotiate the deal with Maybank Trustees Bhd, which is acting on behalf of Sentral REIT.

Equatorial Plaza, a 52-storey building, accommodates the 5-star EQ Kuala Lumpur hotel as well as Grade A office spaces. The building, designed to be energy-efficient, incorporates innovative features into its design.

The Ocean Cleanup has announced the opening of its first regional office in the capital city of Malaysia. The regional office at Menara Prestige, which was formally opened in April, will serve as a platform for the organisation’s Interceptor programme in Southeast Asia.

Gerson Lehrman Group (GLG) has also launched a new office in Malaysia. The office will support GLG’s growing, multi-lingual local team and accelerate GLG’s continued growth in the APAC region.

US-based Xsolla, a global video game commerce company, has opened its largest global office outside of its Los Angeles headquarters, to tap into the growing local games market. Xsolla’s new office is located at The Vertical Corporate Towers in Bangsar.

The need for office space is being driven by coworking spaces

Micro, small, and medium-sized businesses (MSMEs), as well as gig workers, independent contractors, and tiny start-ups, are increasingly choosing co-working spaces as their primary workplaces. 

Large corporations, including DHL, Maybank, Alliance Bank, Sibelco, Telum Media, LingoAce, PhillipCapital, and HRnetGroup, are among those preferring to conduct business out of co-working spaces.

“One of the reasons why more companies are opting for co-working spaces is the flexibility that allows them to scale up and down quickly and economically. In a post-COVID world, companies need to be more agile without having the restriction of a fixed or traditional office space,” Knight Frank said.

The leading provider of serviced offices in Labuan, Universal Serviced Offices & Management Limited (USO), has launched a co-working and serviced office branch at Bangsar South’s Tower 7, The Horizon. The branch provides 12 workstations in the shared/open co-working space in addition to 153 fully furnished workstations.

Two Grade A corporate office towers owned by Paramount Property are being offered for sale in Petaling Jaya by Paramount Corp Bhd for more than RM320 million. The office buildings are part of Atwater, a 5.09-acre integrated mixed-use development in Petaling Jaya.

The stratified offices feature a range of useful floor plates and are intended to be adaptable work environments. The present plan is to sell Tower A, while Tower B can be leased, either individually or in lots, by different tenants. The two office towers are slated to be completed by the third quarter of this year.

Source : https://www.nst.com.my/property/2023/08/937856/developers-unfazed-influx-commercial-supply-new-trends-drive-market