ALTHOUGH the Klang Valley has a surplus of 20 million sq ft of office space market, the oversupplied condition is not occurring in all sub-segments, said Khong & Jaafar Sdn Bhd managing director Elvin Fernandez.

''Thus while the older, poorly located and poorly managed buildings have high vacancies, the new and better located buildings and those that are a better fit in terms of tenant preferences, are doing fairly well in terms of increasing occupancy and increasing rental charges,'' he said, adding that rents in these preferred buildings were rising slowly in line with the improving growth rates in the economy.

Colliers, Jordan Lee and Jaafar Sdn Bhd managing director Tangga Peragasam agrees.

''There are no problems selling or leasing commercial properties in good locations. In fact, demand for these properties has recovered,'' he said.

According to Tangga, good locations for office space include the Golden Triangle and for retail – Mid Valley, Kuala Lumpur Central Business District and Bukit Bintang.

Fernandez expects prime office rent to pass the benchmark of RM4 to RM5 per sq ft (psf) per month level, bringing the market to above levels that support the cost of putting up such buildings.

''It will mark a milestone in the development of the market since the Asian Financial crisis.

''With rents for these 'market fit' buildings looking upward, the initial returns for potential investors of office buildings are exceptionally high at this point in time,'' he said.

According to Fernandez, the well managed and well located shopping complexes, both suburban and downtown are also good, with increasing rents based on strengthening turnovers, despite the overall oversupply in the market.

Tangga said retail rental charges had risen by 15% to 20% in the past three years with places like Bukit Bintang commanding RM25 to RM35 psf per month and Mid Valley RM15 to RM35 psf.

''There is also high demand for two- or three-storey shop houses in Bangsar, which have been sold for RM4mil compared with RM3mil one or two years ago. Three storey shop offices in Desa Sri Hartamas are going for RM2.5mil to RM3mil, up from RM1.5mil two years ago,'' he said.

On return on investments, Tangga said an average return would be 6% to 7% for retail and office properties and 5% for poorer locations.

''This is expected to continue in the next six to 12 months,'' he said.

CH Williams Talhar & Wong Sdn Bhd managing director Goh Tian Sui said bank mergers, which caused right sizing and movements, had put some initial pressure on office space demand but this had stabilised.

''Office users had moved out but there was no expansion of space by other businesses. With the recovery in the economy, there has been improvement in the office space take-up rate. It is moving on nicely,'' he said.

However, he concurred that some office space, especially those in the outskirts of the Kuala Lumpur central area would continue to be vacant due to its not so desirable location.

Goh expects the vacancy rate to generally reduce for all commercial property segments going forward with the underlying factor that the economy would do well.

''Supply is more or less fixed as developers are now more cautious and not really building very much. However, this could lead to an upward pressure on rentals, especially in sub-markets where current occupancies are good,'' he said, adding that the main growth areas consisted of new townships like Kota Damansara, Kota Kemuning, Puchong and Cyberjaya.

The firm's first-quarter report for the office sector in the Klang Valley recorded a vacancy rate of 18% with prime rates stable at RM4 to RM6 psf per month.

YY Property Solutions (in association with Cushman & Wakefield) chief executive officer Y.Y. Lau noted that there had been active transactions in the high-rise purpose built office market for sales and investment purposes in the past 12 months.

Recent transactions on existing buildings include Menara Weld, Menara Milenium, Mui Plaza and Wisma KFC.

Lau said activities in the rental market were also picking up, especially from existing companies, which were upgrading and expanding with some notable transactions related to financial services and insurance.

Source : The Star  26/7/2004