Race to let out office space

Colliers International says office investment yields are likely to remain stable at between 6 per cent and 6.5 per cent

Competition among lessors of office space in Kuala Lumpur is expected to intensify this year, with average rental of office space in the business district projected to remain unchanged at US$24.31 (US$1 = RM3.05) per sq ft a year.

Global real estate firm Colliers International said office investment yields are likely to remain stable at between 6 per cent and 6.5 per cent.

It said landlords will compete to secure tenants as vacancy rate is set to rise this year.

"Despite the improvement on the nett take-up, average vacancy rate is expected to increase towards the end of 2011," Colliers said in its Asia Pacific Office Market Overview for the fourth quarter 2010.

The publication, made available to Business Times, states that the office market in Kuala Lumpur will see an increase in fresh supply in the second half of 2011.

However, it said if completion schedules are deferred, prime office rentals are set to stay firm over the near term.

According to Colliers, over three million sq ft of new supply of office space in Kuala Lumpur business district is expected this year compared with 677,000 sq ft new office space last year.

This brings the total stock of office space in the area to 31.1 million sq ft compared with 28.1 million sq ft in 2010.

The take-up rate is likely to rise to 1.6 million sq ft, up from 1.2 million sq ft last year.

Colliers said the average vacancy is set to widen by nearly two-thirds to 15.5 per cent, from 9.7 per cent last year.

"One of the latest market trends is that tenants are increasingly focusing on 'green' office buildings for their present needs," it said.

In neighbouring countries, the supply of new office space in the central business district of Singapore, Bangkok and Ho Chi Minh City is also expected to rise this year. In Jakarta, the new office supply in its central business district is likely to drop, while there is no new supply in Manila's Makati.

While the average rental space in Kuala Lumpur is projected to be stagnant, the rental in the neighbouring countries is anticipated to increase.

In Singapore, the average rental of office space is set to grow from US$73.69 to US$88.85 per sq ft a year. Similarly, in Bangkok, the rate is projected to rise to US$25.14 from US$24.37 per sq ft a year.

In Jakarta, the rate is expected to grow to US$20.20 from US$19.28 per sq ft a year, while in Makati, it is projected to rise to US$19.33 from US$16.89 per sq ft a year.

However, in Ho Chi Minh City, the rate is projected to fall to US$41.20 from US$46.82 per sq ft a year.

On the regional outlook, Colliers said the office market in Asia Pacific will continue its recovery in anticipation of a further pick-up in demand this year.

"Despite the challenge of forthcoming supply cycles in individual centres, the overall absorption rate is predicted to increase, amid further enhancement of market sentiment largely spilling over from the buoyant asset markets in the region," it said.

By Business Times