Kuala Lumpur Offi ce - Savills
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Asian Cities Report – 2H 2019
REPORT
Savills Research
Kuala Lumpur Office
Kuala Lumpur Office
Strong interest in quality office space is being
led by the expansion of flexible space operators
NEW SUPPLY
GRAPH 1: Greater KL Office Stock, 2010 to 1H/2019 Stock of office space in Greater KL, the single largest office market in ASEAN, stands
at approximately 126 million sq ft, with the completion of four new office buildings
KL City The Rest of Greater KL Greater KL contributing 1.08 million sq ft in 1H/2019.
140
125.3 126.4 The first office tower within the Tun Razak Exchange, namely Menara Prudential,
120.4 was completed this year and serves as the headquarters for Prudential Assurance
120 115.4
111.5
105.4 Malaysia Bhd. The KYM Tower in Mutiara Damansara and Symphony Square in
102.2
97.9 Petaling Jaya were also completed in early 2019. With the exception of the EkoCheras
100 91.5
86.7 Office Suites, the other three new buildings are single-owned en-bloc buildings, built
MILLION SQ FT
with quality features and modern specifications.
80
By the end of 2019, the stock of office space is expected to expand by 3.8 million sq
60
ft, touching approximately 130 million sq ft – with the completion of Southeast Asia’s
tallest building, The Exchange 106, which will replace the Petronas Twin Towers as
40
the tallest building in the country. This landmark office tower, located within the
Tun Razak Exchange (TRX), stands at 492m tall, offering 2.4 million sq ft of column-
20
free office space with spacious floor plates ranging from 22,000 to 34,000 sq ft. It is
reportedly up to 20% pre-leased and targeted to be half-filled by the end of 2020.
0 Construction of new buildings continues unabated, with approximately 18 million
2010 2011 2012 2013 2014 2015 2016 2017 2018 1H sq ft coming on stream between now and 2022. The bulk of the incoming offices
2019 are situated within KL City, accounting for 63% (11.50 mil sq ft), with the remaining
Source Savills Research located within Outer KL (26%, 4.6 mil sq ft) and KL suburban (11%, 2.10 mil sq ft).
About a third of the incoming space is located in the Golden Triangle area,
GRAPH 2: New Office Supply in Greater KL,
predominantly from office towers in TRX as well as another future iconic tower, the
2011 to 1H/2019 Merdeka 118, which will dethrone Exchange 106 as the tallest tower in Southeast Asia
and is set to be the fourth tallest tower in the world. Merdeka 118 offers 1.65 million
The Rest of GKL KL City Greater KL sq ft of office space and Park Hyatt will take up the top 17 floors of the tower. The
8
7.21
skyscraper is scheduled for completion in 2021.
7
VACANCY RATES
6 5.43 5.51 The overall vacancy rate in Greater KL (excluding Cyberjaya) improved to 21.6%
5.15 in Q2/2019, compared to 22.9% in Q1/2019, attributed to the mushrooming of co-
MILLIONS SQ FT
5 working space operators, predominantly in Grade A offices. The performance of
4.15
3.97 Grade A offices remained resilient across the board, with vacancy rates hovering
4 3.43 between 10% and 15% over the past five years.
3 2.60
While the KL city centre remains the preferred address for large corporations, the
Grade A office space within KL Suburban is performing well, as several multinational
2 technology companies in expansion mode show a preference for suburban offices.
1.08 The vacancy rate of KL Suburban has fallen by approximately 3 percentage points
1
to 20% in Q2/2019 (Q4/2018: 23%), attributed to the relocation of some companies
0 from the city centre into the suburbs due to cheaper rents in newer, better-specified
2011 2012 2013 2014 2015 2016 2017 2018 1H offices. Khazanah Nasional Bhd, the country’s sovereign wealth fund, has also
2019 announced plans to move from its Petronas Twin Towers office to a KL Sentral
Source Savills Research address, as a cost cutting measure.
Nonetheless, leasing activity in newly completed office buildings remains a
GRAPH 3: Grade A Office Supply And Vacancy Rate, concern with most of the newly completed office buildings recording discouraging
2010 to 1H/2019 pre-commitment of less than 40% of the available leasable space upon completion.
Grade A Supply (LHS) Grade A Vacancy (RHS)
12 25% RENTS & PRICES
Supply has outpaced demand since 2009. The average office asking rent in Greater
KL has remained fairly resilient, remaining at around RM5.39 per sq ft per month
10
20% since Q4/2018. Similarly, in the Grade A office rental market, there have been no
major fluctuations to the average asking rent, which is holding at RM8.55 per sq ft per
MILLIONS SQ FT
8 month.
VACANCY RATE
15%
The lack of demand will put further pressure on the current competitive rental
6 market, especially for aged office buildings. Hence, apart from offering attractive
rental packages and incentives, some building landlords have invested in enhancing
10%
4
building features and specifications through asset enhancement initiatives (AEI).
This is in response to the current flight to quality phenomenon, and the evolution
5% from contemporary workspace into flexible and collaborative oriented workspace. An
2
example of this is Hong Leong Group which has embarked on a reinvention of 65%
of the office space (250,000 sq ft) in Menara HLA for an initial investment of RM40
0 0% million into HLX Integrated Innovation Centre. The initiative is aimed at offering a
2010 2011 2012 2013 2014 2015 2016 2017 2018 1H collaborative platform for start-ups, corporates, technology companies and venture
2019
Source Savills Research capitalists.
savills.com.my/researchKuala Lumpur Office
Office investment sentiment remained muted in 1H/2019. Five office buildings
transacted in the first half of 2019, amounting to RM480 million. In KL City, GRAPH 4: Average Office Rents In Greater KL,
2010 to 1H/2019
Singapore’s Royal Group reportedly agreed terms for the proposed acquisition of
Wisma KFC for a total consideration of RM130 million, while Asia New Venture
All Grade Offices Prime Offices
Capital Holdings Sdn Bhd is reportedly entered into agreement to acquire Wisma 10
MPL along Jalan Raja Chulan for RM189 million. In the Kuala Lumpur suburban
9
region, Nexgram Tower and Ikhlas Point (Tower 11) at Bangsar South changed hands
in Q1/2019, amounting to RM113 million. 8
7
MARKET OUTLOOK
6
The impending supply of office space will continue to pressure the office rental
RM PSF
market, with vacancy rates expected to rise. Upcoming new office buildings in prime 5
locations with quality building features and competitive rents will continue to be
4
well received, compared to older buildings. In order to stay relevant and competitive
in the prevailing market, older office buildings may consider enhancing building 3
features along with providing attractive rental packages and incentives. 2
Changes in the workforce composition and the disruption of technology are
1
changing how we work and communicate, which are key drivers in the evolution
and innovation of today’s workspace. The office space of tomorrow must be future- 0
proofed, be it in the form of technology or space planning, by considering the 2010 2011 2012 2013 2014 2015 2016 2017 2018 1H
2019
curation of flexible, convenient and collaborative work environments suitable for all
categories of workforce. Source Savills Research
Asset Enhancement Initiatives (AEI) are an
alternative solution for aged office buildings, in
order to stay relevant and competitive in today’s
challenging office market.
TABLE 1: Notable Office Leasing Activities/Tenant Movement In Greater KL
TENANTS NEW OFFICE EST FLOOR AREA (SQ FT) REMARK
Standard Chartered Bank 106,000 Relocation
Equatorial Plaza*
McDermott 60,000 Expansion
Capitaland 14,000 Relocation
KL City Naza Tower
Co-labs 28,000 New Set Up
Common Ground KL33 27,000 New Set Up
Spaces Menara Prestige 55,800 New Set Up
Volkswagen 14,000 Relocation
CIMB Howden Insurance Brokers Menara Etiqa* 14,000 Relocation
Reinsurance Group of America 6,900 Relocation
Samsung 78,000 Relocation
KL Suburban Wework Mercu 2 KL Eco City 60,000 New Set Up
RAM Holdings 26,000 Relocation
BHP Billiton Southpoint, Mid Valley City 100,000 Relocation
Telemarket Malaysia Menara Bank Rakyat 70,000 Relocation
Spaces Platinum Sentral 70,000 New Set Up
Colony KYM Tower 19,500 New Set Up
Outer KL (Selangor) Co-labs Uptown 7 15,000 Expansion
Common Ground Nucleus Tower 22,000 New Set Up
Source Savills Research & Consultancy
*Savills Malaysia is the exclusive leasing agent for Equatorial Plaza and Menara Etiqa.Savills Malaysia Level 9, Menara Millenium Jalan Damanlela, Bukit Damansara Kuala Lumpur 50490 Malaysia +603 2092 5955
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