Cost saving, trends to impact office space

In manoeuvring around the slow property market, multinational companies (MNCs) are looking at ways to save cost. Knight Frank Malaysia Sdn Bhd managing director Sarkunan Subramaniam told The Edge Malaysia that office space has become an integral part of cost savings and a key focus for MNCs in 2016.

“The office market has evolved. Office space used to be something that companies needed in order to conduct businesses. It has now grown to become perhaps the largest cost for a company, thus an integral part of cost savings. The question is how do we go about it in order to sustain its demand and occupancy,” he said.

Sarkunan is set to present a talk on “Office Market Performance and Outlook” at the upcoming 9th Malaysian Property Summit (9MPS) 2016 organised by the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the private sector (PEPS) on Jan 20. The Edge Malaysia and is one of the media partners for the event. It will cover the latest office market statistics such as supply, occupancy rate, rental rate, total absorption and its movements over the years, office spaces under construction and market trends in 2016.

Sarkunan foresees that the shift from a “landlord” to a “tenant” market will cause the take-up rate and occupancy levels to drop in 2016.

“The overall rental rate may dip over time due to heightened competition in our tenant-favoured environment. Many enterprises are freezing their business activities, reducing investment on staff and consolidating their positions due to the slow economy. This will impact the take-up rate and overall occupancy levels. However, rental rates of well-located and good grade office spaces are expected to remain resilient,” he elaborated.

Landlords are adopting aggressive marketing plans to improve their overall occupancy levels, he says. Meanwhile, tenants continue to be offered attractive rent, incentives and tenancy terms such as longer rent-free periods.

The correlation between office occupancy and the market will be more significant in 2016.

“The contraction of the oil and gas sector is a significant trend leading up to the fall of oil prices. The main lifeline of one of the leading sectors has dried up,” said Sarkunan. “The economy today is certainly more volatile ... one day [oil prices] could run high, then fluctuate dramatically the next. The key is to survey these economic changes in the next 10 years in order to address the office market and make the changes accordingly.”

Meanwhile, a few underlying factors are causing changes in the office market this year. “We need to study the impact and the changes in the office environment. In terms of legal issues, we need to know how dynamic leases are today, and also the need for flexibility. Most importantly, we need to understand what is driving the market,” he said.

“Moving forward, things are going to change as far as corporate occupancy is concerned,” he predicts. - The Edge Property