Occupancy rate fell to 70%-80% after Petronas Twin Towers was built

Occupancy rate fell to 70%-80% after Petronas Twin Towers was built

MALAYSIA - Exactly one year after property consultancy Jones Lang Wootton (JLW) drew attention to the Klang Valley office market's 100 million sq ft milestone, opposing views are brewing whether the numbers are as frightening as made out to be.

Earlier this week, property consultancy CH Williams Talhar & Wong said although the Klang Valley office market might have an oversupply of office space on plan, the situation is controllable.

Said its managing director Foo Gee Jen: "The developers or owners can slow down or pause, which they did last year."

Zerin Properties CEO Previndran Singhe says the situation is not dire. Supply is not all coming "at one go" and there is still a healthy take-up rate.

Occupancy is about 80 per cent currently, he says. Assuming 2014 supply comes in and this space is not filled, occupancy will drop to 78.57 per cent. For 2015, it will be 75.86 per cent and 2016 it will be 73.82 per cent (assuming no take-up of this space). This is not detrimental to the market. "Things go south when occupancies are way below 60 per cent," he says.

"Moreover, there is a strong trend of newer office buildings being filled up at the expense of older ones, and the older ones are being rejuvenated into boutique hotels," says Previn.

While there is no reason to pit one view against another, the Klang Valley office situation underscores the differing yardsticks and benchmarks.

JLW, which first highlighted the situation, defines office stock as purpose-built self-contained buildings above five storeys. Federal and state government office complexes solely used by the Government and older buildings where part of the space has been sold on strata are excluded from JLW's monitored stock.

Before the Petronas Twin Towers was completed, office occupancy hovered above 90 per cent. Occupancy hovered in the strong 70 per cent-80 per cent range in 1998 after its completion. This suggests the office market has not recovered fully, some say.

Does this mean we have to return to the 90 per cent occupancy rate level before building more offices? There is "no magic number", says Savills Rahim & Co, but constant and careful monitoring is crucial.

What is clear, says Savills Rahim, is that the office market has become increasingly fragmented with different tiers, for example Grade A and B. Opinions differ as to what constitutes a Grade A building.

"For us, new or refurbished buildings completed after 2008 is Grade A. They represent the next generation of office stock," the statement says.

"Grade A occupancy was high at 90+ per cent back in 2008 as a result of the decade old freeze on new office development imposed by City Hall at that time. As a result, we saw a pent-up demand for world class office space as even back then the majority of Kuala Lumpur stock was becoming obsolete.

"The new buildings completed since then are catering to this pent-up demand. For these new Grade As at least, many of them will move towards full occupancy soon," the statement says.

The older buildings need to adapt to changing needs or risk falling behind. The key lies in redevelopment and change in land use, the statement says.

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