Co-working spaces to help reposition market demand

Co-working spaces to help reposition market demand

21 March 2018

KUALA LUMPUR: The co-working trend in Malaysia may help reposition demand for the oversupplied office property segment instead of reducing it, says real estate advisory firm Savills (M) Sdn Bhd.

Savills executive chairman Datuk Christopher Boyd said this is because traditional workspaces — which meet tenants’ demand for modern facilities — can be easily turned into shared office spaces.

“It is also not aimed at just the Golden Triangle, but [also office spaces] in the suburbs and other cities such as Penang, Kuantan, Johor Baru,” Boyd told a Savills Malaysia Breakfast Forum here yesterday.

Deputy executive chairman Allan Soo concurred, saying it has helped alleviate the oversupply of office property.

“Nowadays, you have medium-sized co-working [tenants] taking up spaces from 20,000 sq ft to as much as 60,000 sq ft. And that’s very good. It helps with the filling up of office buildings,” he said.

He said property owners and co-working operators are not competing against each other in the growing adoption of communal workspaces. Instead, it helps nurture new tenants for the buildings, as start-ups familiar with the building may consider moving in for the longer term eventually.

However, it may do little to help rental growth as tenants typically shift from the traditional to newer office buildings if rentals are not significantly higher, and as the market supply remains challenging, Soo added.

Notable players in Malaysia’s co-working scene include Common Ground, Regus and Colony.

Meanwhile, Boyd expects a slight rise in vacancy rate for office buildings in the Klang Valley this year, but reminded that such vacancy is temporary and not “life-threatening”, given the cyclical property market.

“I think it (vacancy rate) will hover around 25% or so this year. We have about 120 million sq ft of office space, which is bigger than Singapore’s, and it is still going through a growth phase,” said Boyd.

Generally, annual absorption of office spaces stands at about three million sq ft in a good year, and one million sq ft to two million sq ft in a relatively quiet year, he said.

“Come 2022 there may be very little new space coming on stream for the next few years. So developers build office buildings for the long term, for 50 years or 100 years,” he added.

Boyd believes that before the surplus base is absorbed by 2022, rentals will be faced with more downward pressure.

“Rental rates have been surprisingly stable and resilient, but they are under pressure. So tenants who are moving now are taking advantage of better specified building by getting a great deal,” he said.

Source: The Edge Markets

Photo source: investPenang

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