Knight Frank sees rise in KL prime office rental for next 3 years, attractive for MNCs

KUALA LUMPUR: The Kuala Lumpur skyline will continue to change as more skyscrapers are completed over the next three years, raising the benchmark of premium grade office space in the city.
Knight Frank Malaysia managing director Sarkunan Subramaniam said by 2020, the iconic PNB Warisan 118 Tower and Exchange 106 in Tun Razak Exchange will be completed, and the Permodalan Nasional Bhd group of companies will occupy 60 floors of the RM5 billion 118-storey tower, which will be the fifth tallest building in the world.
“The entry of these skyscrapers will raise the benchmark of premium grade office space in Kuala Lumpur and is deemed timely as Greater Kuala Lumpur continues to attract multinational companies and transforms into a sustainable and liveable metropolis,” he said at the launch of Global Cities: The 2018 Report today.
According to the report’s Skyscraper Index, Kuala Lumpur’s skyscraper rents offer the best value among commercial buildings over 30-storeys surveyed across 23 global cities.
As of the second quarter of 2017, prime office rents for upper floors in skyscrapers stood at US$23 per square foot (psf) per annum. In the first six months of the year, the rental rate had actually declined by 0.8%.
Meanwhile, the most expensive prime office rent for upper floors in skyscrapers was in Hong Kong at US$304 psf per annum, followed by New York (Manhattan) at US$162 psf per annum.
Overall, Knight Frank expects Kuala Lumpur’s prime office rental to grow 2.5% over the next three years, which is a positive outlook following the 1.7% annual decline seen in the second quarter of 2017 compared with the second quarter of 2016.
Sarkunan said the growth is due to the attractiveness of the city, as Greater Kuala Lumpur is one of the key market leaders in mixed-use development with successful projects such as Mid Valley City, Bangsar South and Sunway Resort City.
“A lot of developments that are being developed are a mixture of work, offices, play, leisure, shopping, retail, living and condos. In fact, we are the leaders in this sort of project. In some of the other major cities, certain areas are known as pure office, certain areas to live and certain other areas to play (unlike our integrated developments),” he added.
Commenting on concerns about oversupply and vacancies in office space, Sarkunan said leasing out prime office space takes time, up to two years for 200,000 sq ft to 300,000 sq ft office space.
“Yes, it is a very competitive market with good incentives given out to tenants in order to bring them in. But at the same time, it is a market which is still stable and still growing at 2.5% till 2020,” he said.
“If we do not have good new offices, no global player is going to come to this market. They want good, top quality. What’s going to happen is, when we build more and more good, prime office space, the Googles and Microsofts of the world will come and they will look at this space favourably,” he added.
Meanwhile, older secondary office space or existing office space that has become vacant must go through a gentrification process to stay competitive.
“We have quite a bit of old stock that needs to be rejuvenated, repurposed and put back into the market … I really want to see this city repurposing and redeveloping some of our Grade B space which are going to be left vacant unless we do that. In fact, that is going to be the process of how more and more, we go towards a global city,” Sarkunan said.