The Klang Valley will have too many offices and shopping malls as both sectors will have about 18 million square feet of space each, to be completed in the next few years, Rahim & Co said today.
According to the property consultancy firm, the Klang Valley already has a total of 69.8 million square feet of retail space as of 2017 — comprising of 32.9 million square feet in Kuala Lumpur and 36.9 million square feet in Selangor — with an average occupancy rate of 85.2 per cent.
“Another 18.2 million square feet is expected to become available over the next four years, adding further pressure on retail mall owners,” it said today.
This is even as Kuala Lumpur recorded a decline in average occupancy rate of retail space from 86.9 per cent the previous period to 84.9 per cent in the first half of 2017, according to the Valuation and Property Services Department (JPPH) statistics cited by Rahim & Co.
A total of 5 million square feet of retail space was vacant in Kuala Lumpur in the first half of last year.
The average occupancy rate for malls in Selangor last year was unchanged from the previous year’s 85.4 per cent.
Sulaiman Akhmady Mohd Saheh, Rahim & Co’s research director, said there will be more competition within the retail segment over the next few years with the influx of new malls, believing that the popularity of shopping online and through mobile devices will also change the industry.
“The e-commerce trend will actually force new developers, or new malls or reviving of old malls, to make them more relevant with more experiential offerings within the mall, not just a place for people to just shop,” he told reporters at the release of the firm’s annual publication Rahim & Co Research — Property Market Review 2017/ 2018.
Robert Ang, director of Rahim & Co’s real estate agency, also told reporters that “the picture is not bright for retail complexes” with the expected increase in vacancy rates, predicting that mall owners will be “more willing to negotiate with tenants on rental terms”.
Rahim & Co’s Petaling Jaya office director Choy Yue Kwong said shopping mall developers traditionally offer rent-free periods of three months or six months to tenants, but said that this incentive alone would no longer be enough in today’s climate to entice tenants to set up new branches there or relocate from more established malls.
“I hope developers will consider a longer rent-free period and maybe free up the cost, but the problem is some of the developers are listed companies. If they do that, the other problem is they are going to write off a lot of cost, that will affect their bottom line,” he told reporters, adding that unlisted firms may find it easier to set aside a budget to attract tenants with longer rent-free periods.
Among examples provided by Rahim & Co of upcoming malls slated for completion this year, include the 300,000 square feet each under the Bukit Bintang Plaza currently undergoing redevelopment and the KL Eco City’s retail space.
The TRX Lifestyle Quarter Mall with 1.2 million square feet retail space is scheduled to be completed next year, while the Pavilion Damansara Heights and Pavilion Bukit Jalil with retail space of 1 million square feet and 1.8 million square feet respectively are expected to be ready by 2020. The Lalaport Mall at the Bukit Bintang City Centre at the former Pudu jail will add on 1.4 million square feet of retail space in 2021.
Empire City Mall in Damansara Perdana alone is expected to add on 2.3 million square feet of retail space, while the Merdeka PNB118 tower will contribute 1 million square feet when completed, information from Rahim & Co showed.
The total office space supply in Klang Valley is currently at 131 million square feet, inclusive of Kuala Lumpur’s 94.1 million square feet with average occupancy rate of 81.4 per cent and Selangor’s 36.9 million square feet with average occupancy rate of 74.7 per cent, Rahim & Co said.
“With the incoming supply of 18 to 20 million square feet estimated to enter the market in the next few years, continued pressure will be seen on the occupancy rates and effective rental rates,” it said, noting however that offices in integrated developments with good transport connectivity will remain attractive for companies seeking to rent.
Tan Sri Abdul Rahim Abdul Rahman, executive chairman of Rahim & Co, said that property developers should not consider both the current and future market conditions when deciding if it was feasible to build a project, noting that the completion of office projects planned years ago all “at one go” would be more than what the market can absorb.
“Absorption traditionally in Malaysia is two to three million square feet of office space (per annum), but when we have 18 million square feet coming in the market within the next three years, it means there will be a lot of pressure... that’s part and parcel of the property development game,” he said.
Ang said he would not describe the oversupply situation in the commercial properties sector as alarming, but acknowledged that competition would be getting stiffer in this segment. He also said rental rates for office spaces are not expected to improve in the near term, but expected an “orderly correction of the market” over time.
Sulaiman noted a new trend where older buildings are being repurposed for other uses, which may help control the incoming new office space supply.
According to Rahim & Co Research’s compilation of selected upcoming offices in Kuala Lumpur, KL Eco City and the country’s tallest tower The Exchange 106@TRX that are slated for completion this year will each contribute 1.75 million and 2.65 million square feet of nett lettable space.
Among other new offices listed are those with scheduled completion dates in 2019 - including Menara Prudential@TRX (560,000 square feet), Affin Bank HQ@TRX (823,439 square feet); and with 2020 completion dates including HSBC Malaysia@TRX (568,000 square feet), CitiTower and Merdeka PNB118 at 1.7 million square feet each, and the Lot 91 project with 1.2 million square feet; as well as several projects including the 2.5 million square feet Tradewinds Square set to be completed by 2021.