Klang Valley offices to see 25% vacancy till 2021-22: Savills

KUALA LUMPUR: Office space in he Klang Valley is expected to see a slight rise in vacancy rates this year and hover at 25% until 2021 or 2022, said Savills (Malaysia) Sdn Bhd executive chairman Datuk Christopher Boyd (pix).
“I think we are going to see a slight rise in vacancy rates and we’ll see a little bit more downward pressure on rentals before the market stabilises. Vacancy rates now, depending on which sector you are talking about, is between 20% and 25%. That’s not the worst I’ve seen in my lifetime but I think it will hover at around 25% or so until the surplus space is absorbed, which will probably be by 2021 or 2022,” he told reporters at the inaugural Savills Malaysia Breakfast Forum today.
Boyd said the total office space in the Klang Valley is about 120 million square feet (sq ft) currently with some five million sq ft being completed annually over the next three years while the absorption rate is two to three million sq ft a year.
Although the amount of office space being built is more than what the market requires in the short term, which has caused downward pressure on rents, Boyd said a temporary vacancy is not “life threatening” as developers build office buildings for the long term, for 50 years or 100 years.
“What is good is that the current modern new generation of office buildings is very much better than the older generation’s. They have bigger floor plates and they are better specified. They have more amenities for tenants in terms of canteens, gyms and so forth. Office workers demand these things these days. You have to look at it as an evolutionary process which will sort itself out in the medium term,” he added.
Boyd said rental rates for office space have been stable and resilient, noting that as rates are under pressure, tenants who are moving into better specified buildings are getting a great deal now.
Commenting on the impact of the co-working space trend on the Klang Valley office market, Boyd said such space will not reduce demand for “traditional” office space but may reposition it.
He said co-working spaces provide great flexibility as tenants can rent anything from a single desk to 100 desks, meeting rooms can be booked at very short notice and some may even operate like clubs whereby members can book space at any of their venues.
“So they aim to be not just in the Golden Triangle but out in the suburbs, in little satellite offices, in other cities like Penang, Kuantan, Johor Baru and so forth,” he added.
Boyd said large corporations may have both their core space and use co-working space as their swing space, which solves the issue of looking for more space as they expand.
“We’ve had tenants tell us, we want 50,000 sq ft now but we would like to have first option on another 20,000 sq ft which we think we may need in a year’s time. That problem is gone now because when they want extra space, they can just take it at short notice,” he said.
Meanwhile, the residential market is expected to pick up after the general election but there will not be any “price explosion” as developers still need to clear a backlog in unsold units, he added.