JLL Malaysia: KL CBD office rent may drop by up to 10%

KUALA LUMPUR (Jan 19): Real estate services provider JLL Malaysia foresees a drop of up to 10% in Kuala Lumpur prime area office rentals before the market recovers.

JLL Malaysia country head Y Y Lau (pictured) said prime area office rents fell in 2016, and could further soften in 2017 owing to oversupply.

“In the central business district (CBD), the rental market could soften because it is still an oversupply situation there. Kuala Lumpur fringe area (KL fringe) will also see more incoming supply by the end of this year. Cyberjaya and Putrajaya also have ample supply. However, in decentralised (DC) areas, the office sector will do fine because there is no oversupply situation yet,” said Lau at JLL Malaysia’s 2016 update and 2017 market outlook media briefing today.

She said generally, office rents in the CBD, KL fringe and DC will decline between 0% and 10% this year.

However, she stressed that this does not mean that all office buildings will experience a rent drop this year.

“For example, Menara Petronas will not be hit because it is doing well. It is just that more landlords will be open to rent negotiations. For instance, some of the landlords who used to ask for RM5 psf per month may be okay with RM4.70 or RM4.80 psf per month this year in return for longer term contracts,” she explains.  

On the sector’s long-term prospect, she said public transport will be the game changer. 

“There will be a spike in demand for projects with good connectivity, such as KL Sentral and other integrated projects with full-range of amenities. We have started to see tenants move back from DC to CBD because of MRT, LRT extensions and improved public transport infrastructures,” Lau noted.

Nevertheless, for the next 12 months, she predicted there will be a rise in vacancy rates, which will indefinitely put pressure on rents and capital values. 

Meanwhile, JLL Malaysia capital markets associate director Nick Charlton said capital values of Kuala Lumpur offices are on the downtrend, and is expected to decline further in 2017.

“Capital values have broadly remained flat, it is anticipated that capital values will reduce 0.3% in 2017 due to several reasons, such as weakness of the ringgit weighing on overseas investments, decline in office demand affecting investor sentiment, low occupancy rate and transaction volumes on the downtrend,” said Charlton.

According to JLL Malaysia data, the occupancy rate of KL’s prime offices peaked in 2015 at 88%, and then fell about 3% to 85% last year. It is expected to fall further to between 80% and 84%.

Meanwhile, transaction value plunged 76% in 2016 to RM1.1 billion, compared with RM4.49 billion in 2015.

“We are anticipating investment volumes for 2017 to be in line with 2016,” Charlton said.

He concluded that the medium-term outlook for Malaysia is positive with continued investment in infrastructure development opening up new areas in Kuala Lumpur.

“The current market presents opportunities for overseas purchasers with a lot of US dollar capital to deploy. However, the anticipated general election in 2017 may weigh on investment decisions in 1H2017,” he noted.

Also attending the briefing is InvestKL CEO Datuk Zainal Amanshah. He said InvestKL has brought in 60% of the targeted 100 multinational companies to invest in Malaysia.

“Our target is to achieve 100 foreign companies (to invest in Malaysia) by 2020 and we have achieved about 60% now,” Zainal said.