Optimistic outlook for Grade A premium offices

PETALING JAYA: Malaysia’s multicultural talent pool, good building quality, competitive rental rates and transparent legal framework in the region continues to be the main factors in attracting multinational corporations (MNCs), says JLL Malaysia.

Managing director Jamie Tan said the company is optimistic on the outlook of Grade A premium offices, as the supply of such properties is considered to be quite scarce at the moment.

“The absorption rate and the demand for such properties is quite high, especially when we talk about the MNCs that are coming into Malaysia.

“These MNCs have their own internal policy that requires them to look for green office spaces or places that comply with environmental, social and governance requirements,” he said at a briefing on the launch of JLL’s 1Q24 Greater Kuala Lumpur Property Market Monitor.

Tan added that the transparency of Malaysia’s legal framework is also another attractive aspect for MNCs seeking a secure investment.

“In comparison with other countries like Indonesia and Vietnam where the laws behind land ownership can be difficult to navigate, Malaysia has more transparency with regards to its land laws, rights to ownership and contract law,” he said.

Meanwhile, JLL Malaysia office leasing advisory team member Quiny Lee said the country’s multicultural talent pool also plays a role in driving talent attraction and foreign investors who are coming into Malaysia.

“The quality of the buildings we build are also of good quality compared with other countries in the region. In terms of rental rates for Grade A or Grade A premium offices, ours are still very low compared with Thailand or Indonesia,” she said.

As for Grade B offices, Tan said these types of properties are losing tenants, although some smaller companies are still maintaining their tenancy.

“Grade B offices are stuck in a dilemma of whether to invest in upgrades now or wait for rentals to improve to fund the necessary capital expenditure. Hence, they are unsure whether they should move forward or stay where they are,” he said.

On this note, Lee said co-working and flexible workspaces are booming and some Grade B buildings are transitioning to these types of spaces.

“Nevertheless, location is important. If a Grade B office building is not situated in a prominent location, it will be hard to attract companies or tenants,” she said.

Generally, office buildings in Malaysia are categorised into Grade A premium, Grade A, Grade B and Grade C.

The grade of an office building is defined by its floor plate in square feet or size, efficiency of the floor plate, certification of building, its specifications, age and location, Lee noted.

“In office buildings, tenants prioritise usable space and higher usable areas lead to better efficiency, categorising a building as Grade A, whereas less efficient floor plates classify a building as Grade B or Grade C.

“Consequently, older Grade B and Grade C buildings with low occupancy rates are often sold by owners, with buyers repurposing them for alternative uses,” she said.