Office galore, enough to fill 10 ‘Merdeka 118’ towers

 

New landmarks such as the ‘Merdeka 118’ tower and the Tun Razak Exchange project would attract tenants seeking luxury space, says a consultant. (Twitter pic)

PETALING JAYA: Property experts have voiced concern over the amount of vacant office space in Kuala Lumpur, which is estimated to be over 30 million square feet, or 10 times the total floor area of the Merdeka 118 tower.

Kashif Ansari, CEO of real estate technology group Juwai IQI, said vacant space amounted to 29% of the 115 million square feet of office space in the city centre. The vacant spaces were located in the central business district, fringe and metro area of KL.

Kashif said overall occupancy of office space had improved through 2022, after Covid-19 lockdowns ended.

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“However, new supply has entered the market more quickly than demand can absorb it. This competition makes it more difficult for landlords to raise rents and requires them to offer incentives,” he told FMT.

Kashif believed that many of these office spaces in downtown Kuala Lumpur were “ripe for conversion” for different purposes, such as storage spaces, data centres, or logistics hubs. But changes would incur high costs and would be difficult to execute.

Converting these office spaces to residential units was not appealing, he said. Residential tenants would pay only for the space that they occupy whereas office tenants tend to rent the whole floor.

“Common areas like hallways, lobbies, and shared amenities can make up a significant portion of a building’s total square footage. So, in addition to all the costs of the conversion, the landlord has a lower potential income.”

Chartered property surveyor Ernest Chong said it was difficult to repurpose these spaces as it would require changing the building’s layout.

An office floor might have only one washroom in the original floor plan but conversion for residential use would incur costs of new sanitary systems, including plumbing, toilets and kitchen, which would put off many landlords.

The transition to work-from-home or hybrid working models may also be a factor.

Property expert Siva Shanker of Rahim & Co said some firms have cut down their office space by 30% after going hybrid following the pandemic.

But Siva was optimistic about demand for office space, saying high-value locations were still competitive in the market, especially those with access to public transport and shopping malls.

“These are the locations that enjoy very high occupancy rates now, places like Bangsar South, KL Sentral, and Mid Valley,” he said.

Other new landmarks like Merdeka 118 and the Tun Razak Exchange (TRX) project will attract high-value tenants seeking luxury office spaces. Take-up may be slow, but they will be occupied, said Siva.

Kashif said the high-profile properties were in desirable locations and had an edge over less attractive locations.

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However, his projected outlook for the overall office space market was not as rosy, with more companies shifting to hybrid work. He said remote working would become predominant in certain industries, such as high technology.

“Companies having trouble persuading their employees to return to office every day are choosing to upgrade their facilities to make them more appealing. Some companies are trading up to higher-quality offices, while also taking less space.

“Merdeka 118 and TRX are high-profile office buildings with excellent amenities. Expect these buildings to be successful at attracting tenants seeking a prominent address and top-tier office space.” - FMT