Looking for Office Space in an Oversupplied Market

Choosing an office space for your expansion, upgrade or even a start up is definitely not easy today especially with the oversupply of office space in the Klang Valley, or more recently coined as the overhang.

At present there is a total supply of over 99.6 Million sqft in Klang Valley (Kuala Lumpur represented about 72% per cent of existing office space and the remaining 28% for Selangor and Putrajaya) out of which the overall occupancy is at 83%, a reduction in overall occupancy as compared to end of 2011 (88.7%) due to the huge supply coming in from a number of buildings that was completed in 2012 with Menara 3 Petronas (840,000 sqft), Menara Worldwide (280,000 sqft NLA), Menara Binjai (330,000 sqft NLA), Menara Felda (559,000 sqft NLA), Integra Tower (777,000 sqft NLA), Platinum Sentral (514,684 sq ft), Dua Sentral (418,812 sq ft), The Horizon Phase 2 (640,000 sq ft) and Point 92@Damansara Perdana (158,000 sqft NLA) being the most notable among them. Klang Valley office market is expected to witness influx of an additional 18 Million sqft of new supply by 2015.

However, the market is expected to bounce back during the second half of 2013 coupled with the many initiatives that are being and will be implemented by the government. Initiatives under the Economic Transformation Programme such as attracting 100 multinational companies (MNCs), the Klang Valley MRT project, the Greater KL Plan and establishing Malaysia as a world-class data centre hub as well as favourable policies in Budget 2013 such as tax incentives for private entrepreneurs in the oil & gas industry, including 100% income tax waiver for 10 years, exemption of withholding tax & stamp duty as well as 10-year tax exemption for companies with TRX (Tun Razak Exchange) status will substantially perk up activities in the office market and thus will mitigate the effect of oversupply of office space by improving the market’s net absorption rate.

Overall, there are still selected buildings in Golden Triangle and even the suburbs of Damansara Heights and Petaling Jaya that are in high demand by new tenants, being preferred choices for office buildings. These buildings are mainly prime office buildings. These types of buildings in Golden Triangle enjoy close to 83% occupancy rates, as with those in the Central Business District enjoying above 88% occupancy. Even prime offices in Damansara Heights are averaging at 89% and in Petaling Jaya, a high of 93%.

In most cases, these buildings are successful and appeal to the potential tenants as they suit the requirements based on the potential tenants" checklist of elements vital to selecting the "right" office space. These elements, which we recommend you strongly to inform your Real Estate Agent in your office search, are as follows:

Location and Accessibility. These properties are well located, easily accessible and appeal to different type of tenants and their needs based on their location. There are located in main thoroughfares with easy vehicular and pedestrian access and serviced by sufficient public transport. For example, Menara Tan & Tan in the Golden Triangle appeals to Embassies, Multi-National Corporations and Oil & Gas Service Companies, as it is located adjacent to Embassy and Expatriate Enclave and also with very good accessibility to Kuala Lumpur City.

Commercial Hot Spots in the Klang Valley, based on their Locations, as identified by Zerin Properties, other than the Golden Triangle, include Bangsar, Damansara Heights, Petaling Jaya New Town, Mont Kiara and Mid Valley. We also anticipate Cyberjaya as another potential Hot Spot especially with the intense promotion of the MSC by the Government.

Size & Space Considerations. The buildings have modular sizes to suit different tenants" requirements and to attract a variety of tenants. Most buildings have minimum sizes of about 1,500 sqft onwards and also larger floor plates to suit your requirements as a tenant. Wisma Goldhill is an excellent example of having various sizes to suit the various needs of its assorted mix of Tenants. As a tenant, you will need to determine the overall amount of space you'll need. For example, space requirement for private offices range from 120-200 square feet, workstations at about 35-80 square feet, reception areas (with seating) at about 350-400 square feet and conference rooms (seating 10-12 people) averaging at 200-375 square feet.

Quality and Pricing. Prices for office are based on cost per square foot. Prices vary widely, depending on the location and grading of the building. For example, a Prime building is typically a modern, attractive secure building in a desirable location. Successful buildings price themselves in a manner that allows them to reflect true value of its quality and not price it self out of market. What you as a potential tenant must look out for is true value for money in the transaction.

Other than the rental, pricing can also be reflected in the rent free periods offered by the Landlords. The longer the rent free, the lesser your effective rental payable and it does make a difference in the overall cashflow of your operations.

Perception and Ambience. Sometimes, a particular type of business requires a certain kind of perception and ambience. For example, if you are a Private Investment Bank, you need to be in an office space that promotes that image or in a space that you can design so that it promotes the required ambience. Menara IMC and Menara Dion are classic examples of properties that exude a certain element of class to attract very discerning tenants whilst the Phileo-type developments have a tendency to attract start ups and technology companies by young entrepreneurs by virtue of its contemporary fell towards the development.

Here it gets interesting, as the basic components of the space you need must be examined. For example, these can include the lighting levels, number of offices you can have with views and windows, what the buildings foyer and facade looks like, whether the interiors walls need to be torn down and what needs to be included etc as it will affect your main costs.

Telecommunications. A very important element in today"s world. The above buildings usually respond very well to the needs of tenants by providing various Telco Services, to include Telekom, Maxis and Time telecom. Common requests nowadays by tenants include for ISDN, ADSL and SDSL services and Tenants are very particular on this issue. The success of business today is highly dependable on telecommunications.

How well the building is maintained. Another crucial and critical issue as a minimum tenancy is usually for 2-3 years for office space and one needs to be comfortable with the quality of the management and response time to potential issues during the tenancy. All the buildings that are enjoying good occupancy are very well managed, either by third party professionals or in-house teams that take pride in the property. A visit to the property will reveal that management presence is felt yet not obtrusive for conducting business in the said premises.

Building as a Landmark/Awareness of Building. This aspect is very important to Tenants that have client coming into their premises. The building must be known in the market as a landmark or some amount of awareness of the building in the market. A good example of a building that is a landmark building and consistently enjoys good occupancy is Wisma Semantan in Damansara Heights.

With the variety of choices available in the market, it is important to ensure choosing the "right" office space. You will need to determine all of the above elements before informing your Real Estate Agent and commencing the search. This will save you time, effort and money plus will help guarantee success in locating an office that is truly appropriate to your companies needs. Previn is the CEO of Zerin Properties, a Licensed and Registered Estate Agency Service Provider. For feedback and inquiries, please e-mail previn@virtualrealty.com.my