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Grade A prime office spaces continue to be in demand — JLL (Malaysia)

KUALA LUMPUR (April 23): Grade A prime office spaces continue to be in demand with improving vacancy and rental rates due to the flight to quality trend among tenants, according to JLL (Malaysia), as discussed in its JLL’s 1Q2024 Greater Kuala Lumpur Property Market Monitor launch on Tuesday. 
In her presentation, JLL (Malaysia) office leasing advisory team member Quiny Lee said the overall vacancy rate in 1Q2024 decreased to 21.1%. In the specific submarkets, KL City experienced a noticeable improvement with the vacancy rate dropping from 30.2% in 4Q2023 to 28.7% in 1Q2024. In the KL fringe market, there was also slight improvement in vacancy rate, decreasing from 7.9% in 4Q2023 to 7.7% in 1Q2024. 
“Flight to quality continues to be the main driver of demand in the market. Consequently, rents for green spaces have experienced faster growth compared to the overall market. Despite this shift, tenants remain cautious about their total occupancy costs and are aiming for greater efficiency, either by downsizing or maintaining the same amount of space when transitioning to green spaces.
“As a result, the net absorption, which indicates the net change in occupied stock, is growing at a slower pace compared to the previous year, when we observed companies moving from older Grade B stock into prime spaces. Nevertheless, net absorption remains positive, signalling that the market continues to grow, overall,” Lee added. 
Concurring with Lee, JLL (Malaysia) managing director Jamie Tan said the supply of such offices is quite scarce at the moment, and the demand is quite high. “Especially when we’re talking about multinational companies (MNCs) coming into Malaysia, they do have an internal policy that requires them to source office space within all the given requirements.”
Tan added that Malaysia’s multicultural talent pool allows the country to be a top choice among MNCs. The quality of our buildings are also very good compared to other countries within the Southeast Asia region. Meanwhile, Tan said that the country’s rental rate is still very low, compared to Thailand’s or Indonesia’s. 
He also said that Malaysia’s transparent legal framework is also an attractive aspect for MNCs or investors. “In Malaysia, our legal framework is quite transparent, as compared to other countries like Indonesia or Vietnam, where the laws behind land ownership can be a bit difficult to navigate. So Malaysia is more transparent in terms of our land laws, rights to ownership and contract law, among other [matters].”
While Grade A prime offices and Grade A offices are gaining traction, office buildings that are Grade B and below are getting left behind. For buildings of Grade B and below that have really low occupancy rates, Lee said the owners tend to sell them off. The buyer will then repurpose or redevelop them into a different asset.
Tan has a different view, “Grade B and below are continuing to lose tenants and they are stuck in a scenario of whether to upgrade or not. But of course, some of the smaller companies have managed to retain their tenants. In general, I think most of them are stuck in the scenario of where they should spend the capex (capital expenditure) first to upgrade, or should they wait for rentals to improve and get enough income for the capex. It’s a bit challenging for them but the demand seems to be in premium Grade A office spaces.” 
Meanwhile, JLL (Malaysia) head of research and consultancy Yulia Nikulicheva said she has observed positive movements across all market segments. “Logistics spaces have recorded a historically low vacancy rate, just at 1%. For data centres, there is no vacancy at all.”
On the retail front, Nikulicheva said there has been strong footfall in major shopping malls in 1Q2024, which was driven by local demand and continuous growth in tourism. She expects the sector to continue growing for the rest of the year, with a positive trend of new and flagship openings observed in the past quarter. 
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Source: EdgeProp.my

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