This article first appeared in City & Country, The Edge Malaysia Weekly on June 20, 2022 - June 26, 2022

The rental and occupancy levels of office space in KL city are anticipated to see downward pressure, as a result of substantial incoming supply and low occupancy in office buildings this year. The occupancy level in KL fringe, however, is expected to remain relatively stable, driven by a wider pool of tenants/occupiers and high-quality decentralised offices, particularly in areas with ease of accessibility and adequate transport links.

Meanwhile, the Selangor office market will remain resilient with more leasing activities expected, especially for buildings with Multimedia Super Corridor (MSC) status and Grade A buildings, says Knight Frank Malaysia executive director of corporate services Teh Young Khean in presenting The Edge/Knight Frank Kuala Lumpur and Selangor Office Monitor 1Q2022.

Malaysia reopened its borders in early April to allow quarantine-free travel and tourism after two years as the nation transitions to the endemic phase. “This will allow economic activities to rejuvenate in the entire spectrum, from business and trade to investments. The office market is set for the release of pent-up demand, as more countries reopen their borders with the improved vaccination rates around the world,” says Teh.

Trends related to the transition to endemicity indicate that organisations opting for hybrid working models are likely to see several advantages. As such, it is crucial to have good infrastructure and facilities to support the new way of working.

Teh says that, as workers gradually return to the office, landlords are emphasising health and safety. Their initiatives include improving indoor environmental quality (IEQ) by modernising the facilities with ultraviolet systems and incorporating technologies to promote touchless access systems.

“The pace of recovery in the office sector will continue to pick up this year, in tandem with the uptick in economic activities and improved business sentiment. Demand for office space is expected to increase with more workers returning to the office and as organisations firm up their physical workplace planning,” says Teh.

As international borders reopen and Covid-19 restrictions are lifted, employees are gradually returning to the office and businesses are generally operating as usual. In KL city and KL fringe, office occupancy saw a slight increase compared with the previous quarter, while the overall occupancy in Selangor was stable during the review period. Nonetheless, the office market remains favourable to tenants.

Knight Frank states that the offices’ grades have been standardised to provide an updated overview of office trends, which are inclusive of all grades (Prime A+, Grade A and Grade B). As the buildings are being regraded, there is a need to restructure the study area, hence the updated KL city centre peripheral.

According to Knight Frank’s data, the average rental rate for Prime A+, Grade A and Grade B offices in KL city’s new CBD and old CBD and KL city centre peripheral (the area surrounding the new CBD and old CBD) remained the same at RM7.10, RM4.49 and RM3.87 psf respectively.

In KL fringe, some areas saw a q-o-q increase in average rental rates for Prime A+, Grade A and Grade B offices. Damansara Heights increased 0.2% to RM4.48 psf; Mid Valley City (MVEC)/KL Eco City (KLEC) increased 0.1% to RM6.03 psf; and Bangsar South/Kerinchi increased 1% to RM5.47 psf. KL Sentral, Taman Tun Dr Ismail (TTDI)/Mont’Kiara/Dutamas and Pantai/Bangsar remained the same at RM6.35, RM4.83 and RM5.03 psf respectively.

In Selangor, the overall rental rates remained stable in 1Q2022. Petaling Jaya saw a marginal increase in average rental rates to RM4.39 psf (4Q2021: RM4.38) while Cyberjaya decreased to RM3.72 psf (4Q2021: RM3.73). Subang Jaya and Shah Alam remained unchanged at RM4.12 and RM3.41 psf respectively.

Meanwhile, the overall average occupancy rate in KL city increased slightly by 0.9% to 67.1%. New CBD and old CBD reported a higher occupancy rate of 66.5% (+1.1%) and 62.8% (+0.9%) respectively, while KL city centre peripheral decreased to 80.4% (-0.9%) q-o-q.

In KL fringe, the average occupancy rate recorded a slight increase of 0.5% to 86.9%, with MVEC/KLEC and Bangsar South/Kerinchi seeing an increase in occupancy rates to 84.5% and 93.5% respectively. Damansara Heights, KL Sentral, TTDI/Mont’Kiara/Dutamas and Pantai/Bangsar decreased to 74.7%, 91.6%, 77.3% and 86.8% respectively.

The overall occupancy rate in Selangor was marginally lower at 74.3% in 1Q2022 compared with 74.4% in 4Q2021. Petaling Jaya recorded a 0.8% increase in occupancy rate to 73% while Subang Jaya and Cyberjaya were down to 76.4% and 72.8% respectively. The occupancy rate in Shah Alam remained unchanged at 82.9% q-o-q.

In 1Q2022, Kuala Lumpur registered a significant increase in net absorption of 432,812 sq ft. Selangor, meanwhile, posted a negative net absorption of 24,537 sq ft, owing to significant tenant movements in the Subang Jaya locality.

The current estimated supply of office space in KL city is 57.24 million sq ft, followed by KL fringe with 28.59 million sq ft and Selangor with 25.40 million sq ft, bringing the total to 111.23 million sq ft.

A total of 10.07 million sq ft of office space is currently under construction. KL city leads with 4.57 million sq ft, followed by KL fringe with 3.37 million sq ft and Selangor with 2.13 million sq ft. Knight Frank Malaysia projects an increase of 9.1% in office space.

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