OVERSUPPLY, LOW TAKE-UP AND INCREASED COMPETITION PUTS TENANTS IN THE DRIVER’S SEAT
With more supply entering an already diluted playing field, the office market is expected to face increased competition this year as new buildings (and old) scramble to avoid low occupancy rates.
That means landlords will have to compete for the attention of tenants, and if you’re on the lookout for space to rent or looking to upgrade into more appealing surroundings, then 2018 is going to be a great year for you.
With approximately 7.6 million square feet of fresh office space entering the market over the next two years within Kuala Lumpur city, fringe districts and Selangor, developers and landlords will have to be aggressive, innovative and incentivise tenants to escape a future of very empty buildings.
This was a key message delivered by Knight Frank Malaysia’s managing director, Sarkunan Subramaniam, when he made a presentation on “The Office Market Performance & Outlook” at the recently concluded 11th Malaysian Property Summit.
One of many industry voices invited to speak at the annual summit, Sarkunan also predicted that the tenant’s market was here to stay for the long term, and landlords will have to readjust their strategy to stay competitive and relevant.
“What we’re seeing now is many new office options coming into play, and they are entering the market with aggressive strategies knowing that the competition will be tough. As a result, they are catering heavily to tenants’ demands by offering attractive pricing, subsidies on moving costs via rent-free periods, additional car-parking space and even work-life enhancement incentives such as free gym memberships and so on,” said Sarkunan.
He pointed out that many of these new options are already highly attractive to prospective tenants because they offer modern facilities, tech upgrades and more state-of-the-art work environments. As such, these will already have a competitive advantage over existing spaces, and older buildings are being vacated as a result.
To stay competitive, Sarkunan advised that older office buildings begin rethinking the workspace to suit contemporary needs, with a plan to refurbish or repurpose existing spaces. He said many forward-thinking building operators have already begun this process by creating a better work-life fusion environment for its customers and infusing more lifestyle options within their premises.
“Also, we see many building operators and landlords recognising the need the preserve existing tenants, and they are doing so by offering fit out contributions, additional storage or parking space and even rent-free periods during tenancy renewals. This is in addition to lowering rents to a more competitive level,” he said.
Describing the directional trend, Sarkunan said traditional box office layouts are rapidly becoming obsolete as more and more business operators are subscribing to the Hawthorne Effect ideology – which stipulates that individuals work more diligently and productively when they perceive they are being observed.
“This is why we are seeing the emerging preference for open and activity based office layouts. It also explains the rapid success of co-working spaces, where even small operations can enjoy the same ambience,” Sarkunan said, adding that the supply of co-working spaces in the Klang Valley is anticipated to exceed 1 million square feet by the end of 2018.
“For a little while, we believed the idea that interactive spaces would be rendered obsolete because of the social connectivity offered by the internet, but this was just wrong. The human touch remains essential to a healthy working culture, and people simply need to be with people to thrive,” he added.
He also said the emergence of co-working spaces is overshadowing the appeal of smaller compact strata units, as start-ups and boutique companies are beginning to prefer this more vibrant working environment. Incidentally, co-working spaces also appeal because they offer plenty of opportunity to network with like-minded individuals.
So what of the future of strata offices? In general, Sarkunan believes offices spaces that offer large floor plates will remain in high demand among multinationals, but smaller strata office units will lose its lustre among international and upmarket tenants.
These will soon have to be targeted at local tenants with lower spending power, he said, but those located at integrated areas with multiple connectivity options and good transportation options will continue to buck the trend in the foreseeable future. — P360