Asian Cities - 2H 2021

S P OT L I G H T
Kuala Lumpur
Savills Research
Offices

Retail sales in Beijing were up 4.4% year-on-year to RMB539.8 billion in 1H 2018

 Kuala Lumpur Offices

Supply to surge over next two years

GRAPH 1: Unemployment Rate, 2010 to Q3/2021
ECONOMY
6% Malaysia’s economy was affected by
political upheaval and prolonged movement
5% 4.8% 4.8% 4.8% 4.7% restrictions for most of 2021. In the first
nine months of 2021, the country’s Gross
Domestic Product (GDP) climbed by 3.0%
4%
3.5% 3.4% compared to a low base in the same period
3.3% 3.2%
3.1% 3.1% 3.0% 3.2% 3.2% of 2020 due to the economic shutdown on
3% 2.8% the outbreak of COVID-19. The subsequent
rise of new cases in the second quarter of
2% 2021 (Q2/2021) has led to the Full Movement
Control Order, and GDP has shrunk by 4.5%
year-on-year (YoY) in Q3/2021, which reflects
1%
the difficulties posed by strict containment
measures aimed at reducing the number of
0% new cases caused by more virulent COVID-19
variants of concern (VOCs).
Nonetheless, the unemployment rate
Source Savills Research has dropped slightly from the previous
quarter to 4.7% in Q3/2021 (Q2/2021: 4.8%),
which translates to a reduction of 18,700
GRAPH 2: Office Stock by Region in Greater KL, 2015 to Q3/2021 persons to 746,200 persons in the third
quarter (Q2/2021: 764,900 persons). In
KL City KL suburban Outer KL Greater KL general, the labour market has a positive
160
association with economic performance.
134.2 137.0 As a result of the National Recovery Plan’s
140 132.1
127.0 (NRP) implementation, economic and
120.4
120
115.2 service activities have been able to resume in
111.3
accordance with the NRP’s phases scheduled
by the Government. The economy is expected
MILLION SQ FT

100
to gradually recover following the transition
80 to Phase 4 of the NRP in October and the full
capacity opening of all economic sectors,
60 including the office sector.

40 NEW SUPPLY
Greater KL’s office market reached a
20
cumulative supply of over 136 million sq ft at
the end of Q3/2021, of which 67% is located
0
2015 2016 2017 2018 2019 2020 Q3/2021 in WP Kuala Lumpur (91.7 million sq ft). This
represents a year-to-date growth of 2.1% and
Source Savills Research
is expected to close the year at 4.4% growth
as more offices are completed by the end of
GRAPH 3: New Office Supply by Region in Greater KL, 2015 to Q3/2021 2021.
Nine new office completions were
KL City KL suburban Outer KL Greater KL
8 witnessed in the first nine months of 2021
7.3 in the Greater KL. Six of the buildings
7 are in WP Kuala Lumpur, namely Menara
Legasi, Menara Permata Sapura KLCC,
6 5.5 TSLaw Tower, The Five @ Kompleks Pejabat
Damansara, Plaza Conlay and Menara Great
4.8 4.8
MILLION SQ FT

5 Eastern 2, amounting to 2.06 million sq

4.0 ft. On the other hand, Outer KL recorded
4 three new office buildings, namely, Q Tower,
2.8 Imazium @ Damansara Uptown and Quill 9
3
Annexe, accounting for 0.69 million sq ft.
1.8 Expected new office completions in
2
Greater KL will amount to 9.9 million sq ft by
1
2023, representing a further supply growth
of 7% from existing levels of which WP Kuala
0 Lumpur accounts for 84% or approximately
2015 2016 2017 2018 2019 2020 Q3/2021 8.3 million sq ft.
Source Savills Research

savills.com.my/research-and-news/ 2
 Kuala Lumpur Offices

VACANCY RATE
Total vacancy for Grade A office in Greater
KL averaged at 26.4% in Q3/2021 and showed
no changes from 2020. In comparison, the
vacancy rate for Grade A offices in WP Kuala We expect to see the office leasing
Lumpur increased slightly to 25.5% (2020:
25.1%) due to supply growth, equating to
market in Greater KL pick up as
available space for rent of 10.5 million sq ft. businesses reactivate relocation
Of the newly completed space of 2.75 million
sq ft in Greater KL, Menara Permata Sapura and expansion plans in the coming
KLCC and Imazium @ Damansara Uptown
were among the new buildings reported to be
months. However, rental growth
over 50% occupied.
The rise in vacancy is also attributed to
could prove to be limited.
the relocation and downsizing of companies
reviewing their space use efficiency. For
instance, British Telecom (BT) downsized

their business operation from seven to only

GRAPH 4: Grade A Office Supply and Vacancy in Greater KL and Kuala Lumpur, 2015 four levels at Menara BT, equivalent to a 40%
to Q3/2021 reduction in the formerly occupied area of
Kuala Lumpur Grade A Space (LHS) Greater KL Grade A Space (LHS) 67,000 sq ft. In view of the large impending
Kuala Lumpur Grade A Vacancy Rate (RHS) Greater KL Grade A Vacancy Rate (RHS) new completions and the current low
70 30% absorption rate, we expect vacancy in Greater
KL to continue to rise in the coming months.
60
25%
RENTAL RATES
50 On the rental side, our research saw the
20% prime office rent in WP Kuala Lumpur remain
VACANCY RATE
MILLION SQ FT

40 constant at RM8.50 p sq ft per month in

15% Q3/2021 compared to 2020, while the asking
30 rent for all grade offices in WP Kuala Lumpur
10%
rose marginally by 0.7% to RM5.80 p sq ft per
20 month compared to the same period. This
was due to the increase in asking rents for
5%
10 some better-located office buildings in the KL
43.5
55.6
35.9

City and KL suburban areas. Nevertheless,

32.8

59.7
47.4

37.9

57.3
51.0
44.1

41.8
41.3

41.1
31.1

0 0% the current weak sentiment is limiting

2015 2016 2017 2018 2019 2020 Q3/2021 rental growth potential, with more tenants
Source Savills Research expecting landlords to offer incentives. We
also observe that some new office buildings
are offering more extended rent-free periods
and fit-out assistance (in certain situations)
to attract new tenants over a long lease term,
GRAPH 5: Average Office Asking Rents in Greater KL, 2015 to Q3/2021 further diluting returns for office landlords.

CAPITAL VALUE & INVESTMENT

All Grade Offices - Greater KL All Grade Offices - Kuala Lumpur
Opportunistic investment and the
Prime Offices - Kuala Lumpur
divestment of office portfolios have
9
characterised the pandemic period. The first
nine months of 2021 saw twelve major office
8 transactions, amounting to RM3.33 billion.
Whilst this represents a 114% increase in
transaction value compared to the full year
7 of 2020, 95% of it comes from the injection of
RM PSF

assets into IGB Commercial REIT.

In April, IGB Berhad injected ten office
6 buildings valued at RM3.16 billion into IGB
Commercial REIT. Seven of them are in Mid
Valley City and three in the Golden Triangle.
5
These office buildings are Menara IGB and
IGB Annexe, Centrepoint South, Centrepoint
4 North, Boulevard Properties, Gardens South
2015 2016 2017 2018 2019 2020 Q3/2021 Tower, Gardens North Tower, Southpoint
properties, Menara Tan and Tan, GTower,
Source Savills Research
and Hampshire Place.

3
 Kuala Lumpur Offices

In May, Nextgreen Global Berhad acquired

TABLE 1: Major Office Transactions, Q1/2021 to Q3/2021 Level 37 of Menara The Met, consisting of 12
stratified office lots measuring 16,105 sq ft for
RM19.0 million for its own use. In July, New
NET LETTABLE PRICE
PROPERTY LOCATION BUYER Straits Times Press (Malaysia) Berhad (98.17%
AREA (SQ FT) (RM MILLION)
owned by Media Prima Bhd) repurchased
Menara IGB & IGB
KL Suburban 261,993 189 its headquarters - Balai Berita Bangsar from
Annexe
PNB Development with RM156 million. Its
Bangsar headquarters was once sold to PNB
Centrepoint South KL Suburban 232,237 191 Development in 2018.

Centrepoint North KL Suburban 232,051 197 MARKET OUTLOOK

Boulevard Properties
Gardens South Tower
Gardens North Tower
Southpoint Properties KL Suburban
Menara Tan & Tan
GTower
Hampshire Place
Office
Level 37 of Menara
The Met
Balai Berita Bangsar
The prolonged restrictions and the imposition
of the movement control order (MCO) due
KL Suburban 53,715 78
to the exponential increase in Covid-19 cases
have significantly impacted the Malaysian
KL Suburban 422,381 392 economy. Malaysia’s economy is on track for
IGB Commercial recovery, premised on reopening all economic
REIT
sectors and resuming most social activities.
KL Suburban 425,612 382
Businesses are hoping for high vaccination
levels to support the recovery. As of November
515,501 574 2021, Malaysia has fully vaccinated nearly 25
million or 77% of its population.
KL City 339,385 239
Various concerns over the future of the
workplace have led to an uncertain demand
outlook; however, our local survey regarding
KL City 746,194 740 the needs and preferences of office workers
indicates that the physical office is still
necessary. The result shows that 81% of
KL City 239,253 181
Malaysian office workers see the physical
Nextgreen Global office as remaining important either ‘always’
KL Suburban 16,105 19
Berhad or at least for the short term. Also, most
workers will not resist returning to the office
New Straits Times
KL Suburban 327,310 156 Press (Malaysia) as they are positively thinking the office
Berhad benefits their physical and mental health and
thus further supports their professional and
Source Savills Research personal development. Indeed, we expect to
see more companies reactive their expansion
and relocation plans in the coming months.

For more information about this report, please contact us

Savills Malaysia Savills Research

Datuk Paul Khong Kean-Hwa Fong Chay-Tong Lek Simon Smith
Managing Director Associate Director Associate Director Regional Head of Research
+603 2092 5955 ext 138 Malaysia Malaysia & Consultancy, Asia Pacific
paul.khong@savills.com.my +603 2092 5955 +603 2092 5955 +852 2842 4573
keanhwa.fong@savills.com.my chaytong.lek@savills.com.my ssmith@savills.com.hk

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