Downsizing in O&G sector will not affect KL office space

KUALA LUMPUR: The industry- wide staff reduction plaguing the oil and gas (O&G) sector is not expected to affect occupancy and rental rates of office buildings in Kuala Lumpur, CH Williams Talhar & Wong Sdn Bhd managing director Foo Gee Jen said.

“I don’t think that will have direct impact on rental rates because, at the moment, the prime rate of RM6.80 per square foot (psf) is still not really very high compared with other regions. Generally, O&G players, though they are the so-called top tenants who pay top money, they don’t really constitute a big percentage (of office space).

“I don’t think that will impact the overall office market. The growth in other service industries, insurance, finance and other forms of services is still very strong,” he told reporters at the launch of the Property Market 2016 report yesterday.

According to Foo, the low crude oil price and less active financial sector may see the consolidation of space requirements or downsizing as part of cost cutting measures.

For example, he said, Shell has been slow in moving into its new space in KL Sentral while ExxonMobil will review its tenancy in KLCC.

In addition, the banking sector has been implementing cost-cutting measures including voluntary and mutual separation schemes.

“Rather than just cutting staff, they are going to cut down space requirements as well. We see that happening already, even for local banks. They will cut down space requirements as well,” Foo said.

He said office market demand for Grade A buildings is expected to remain firm driven by domestic demand but the office segment overall will continue to be a tenant’s market.

“In the near future, prime rentals are expected to stay stable, but may see a dip in occupancy rates with increased competitiveness and uncertainty of economic climate,” he said.

The cumulative supply in office space in the Klang Valley is expected to grow 3.5% to 101 million sq ft by year-end from 98.6 million sq ft now.

Foo said infrastructure improvements such as the completion of the MRT at year-end will improve the ease of doing business in Malaysia, which augurs well for the service industry.

“With all this, the office sector may suffer with O&G, but overall probably in the second half of the year, there will be an improvement in terms of office segment,” he said.

Foo said there will still be interest from international institutional investors for office buildings in Kuala Lumpur.

“Since the third quarter of last year, we’ve seen a lot of interest coming from Japan and Singapore, taking advantage of the depreciation in our ringgit against their currencies,” Foo added.

Although yields in Malaysia have been suppressed over the years, they are still higher than yields in Singapore and Japan.

source by:http://www.thesundaily.my/node/345874