A ROSY near-term outlook is expected for the Asia-Pacific prime office market in 2018. But for the sector to perform better in Malaysia, it may need some “pushing” from various initiatives in the 2018 Budget for infrastructure, housing and construction.
Kuala Lumpur city centre’s prime office rents fell 0.4 per cent quarter-on-quarter (q-o-q) in the third quarter of 2017 and is expected to be weaker in the next 12 months, according to Knight Frank’s Asia Pacific Prime Office Rental Index Q3 2017.
“As a growing number of new office space comes into completion amid the weaker occupier demand, overall rents and occupancy levels continued to be under pressure.
“In this tenant-led market, landlords continue to be flexible as they strive to maintain and improve the occupancies of their buildings,” said Knight Frank head of research for Asia Pacific Nicholas Holt.
Knight Frank, however, also noted that despite the weak office market performance in Kuala Lumpur, the country’s the 2018 Budget introduced “encouraging measures and incentives to various sectors”.
Analysts opined that Malaysia’s infrastructure and construction development could boost the prime office market segment in the near future.
There are big projects in Malaysia, some of which are ongoing, and others to start from next year. These include Mass Rapid Transit (MRT) Line 2 and Line 3; Light Rail Transit (LRT) Line 3 connecting Bandar Utama to Johan Setia, Klang; the East Coast Rail Link connecting Port Klang to Pengkalan Kubor, Kelantan; the construction of Lebuhraya Persisiran Pantai Barat from Banting to Taiping; the Central Spine Road project; oil and gas projects; and integrated mixed-used property developments.
Future developments will include the Kuala Lumpur-Singapore high speed rail project.
“These projects are attracting foreign companies from around the world. We can expect to see a lot more international play in the market which would boost the luxury housing market. The prime office market is also expected to improve as more multi national companies are expected to set up shop here, encouraged by the country’s economic growth,” said analysts.
Overall, Knight Frank’s Asia Pacific Prime Office Rental Index Q3 2017 increased by 0.6 per cent q-o-q and 0.8 per cent year-on-year.
The increase was the result of rising rents in 11 out of the 20 markets tracked over the third quarter, with rental declines experienced in six markets.
“Amid growing market confidence and the impressive recovery of Asia’s export markets so far in 2017, leasing momentum remains broadly robust across Asia-Pacific prime office markets,” said Holt.
Bangkok was the strongest-performing Asian market in the third quarter, having achieved 4.4 per cent q-o-q increase, higher than its 3.9 per cent growth per year.
Knight Frank expects this upward trend to continue for at least the next 24 months.
In Singapore, prime rents increased for the first time since late-2014, despite vacancy rates continuing to rise above 15 per cent on large incoming supply over the last two quarters.
The low vacancy rate, coupled with strong demand, continued to boost prime office rentals in Hong Kong. Rents in Central are expected to increase by five per cent to seven per cent for the whole of this year. In the third quarter, domestic firms remained the key driving force in Beijing leasing market, as tenants from the financial and TMT (technology, media, and telecom) sectors concluded major transactions.
In Phnom Penh, Knight Frank expects the office supply pipeline for the next two years may more than double its current total stock, which is likely to weigh on rental levels.
Knight Frank expects over the next 12 months, rents in 16 out of the 20 tracked cities to either remain stable or increase, up from 15 in its previous forecast.