Commercial values and rental in KL touch new high

UNDER the Kuala Lumpur Structure Plan 2020, the city has five goals to achieve in order to assume its place as a major global city. First on the list is to enhance the role of the city as an international commercial and financial centre. Other goals in the plan are to create an efficient and equitable city structure, enhance the city's living environment, create a distinctive identity and image for the city, and have efficient and effective governance. Judging from the amount of property development activity going on in downtown Kuala Lumpur, especially in the construction of luxury condominiums and serviced apartments in the vicinity of the Kuala Lumpur City Centre (KLCC), at least one aspect of the plan is being implemented.

The majestic Petronas Twin Towers

However, commercial property development in the downtown area has lagged behind the feverish pace of residential property development until the past year or so. This has led to a rise in the values and rentals of commercial properties, both in the office and retail sub-segments.

Except for the KL Sentral, the Mid Valley City and Bukit Damansara commercial precinct, KL City Hall has in general discouraged the development of commercial properties, especially office towers, since the 1997 Asian financial crisis due to the number of uncompleted or untenanted properties then. City Hall had subsequently said it would only approve commercial property development on certain stringent conditions.

In the decade since the Petronas Twin Towers together with its 6-storey Suria shopping mall located in the very heart of KLCC opened its doors, there have not been many purpose-built commercial buildings in the area except for the 29-storey Menara ExxonMobil, the 49-storey Menara Maxis and the five-star Mandarin Hotel Kuala Lumpur owned by KLCC Property Holdings Bhd. Another new office building is the 36-storey Menara Public Bank, located along the corner of Jalan Ampang and Jalan Yap Kwan Seng, completed in 1994.

This has led to a situation in which there is a lack of Grade A office space in the area, noted several property consultants. This is now being remedied, as can be seen from announcements made in the past two years on the development of commercial properties, usually an office tower or two with a residential element in the form of serviced suites or apartments on a retail podium.

According to Henry Butcher Malaysia Sdn Bhd chief operating officer Tang Chee Meng, the past year was marked by strong interest from institutional buyers for Grade A office buildings, resulting in capital values of these buildings hitting benchmark prices after hovering in the RM500 to RM600 per sq ft (psf) band over the past few years.

He said office rentals had moved up in tandem with values, with Grade A office rentals located in the vicinity of KLCC ranging between RM5 and RM8 psf while occupancy rates in KL have moved up to around 83%.

Among those developing commercial properties in the neighbourhood of KLCC, KLCC Property comes easily to mind. It is developing another 59-storey office tower cum shopping podium. YNH Property Bhd, on the other hand, is developing Lot 163 Suites, a mixed development project that includes a 14-storey office tower with a gross development value (GDV) of RM322mil along Jalan Perak.

Another development that would take place along the same stretch of road is the 34-storey office building by TH Technologies Sdn Bhd, part of Lembaga Tabung Haji.

The RM150mil building is built on the build-operate-transfer model in which the Islamic pilgrims' fund would hand over the building to the Federal Territory Islamic Religious Council after 25 years. In that period, rental revenue would go to the fund, which in turn would apportion part of it to the council.

Glomac Bhd is another company that saw the need for more Grade A office space in the area. The company is the senior partner in a joint venture with the diversified Al Batha Group of the United Arab Emirates for the development of the 40-storey Glomac Tower located on the corner of Jalan Pinang and Jalan P. Ramlee.

The yet-to-be-built office tower, which has a net lettable area of 243,830 sq ft, was purchased late last year by Kuwait Finance House (M) Bhd for RM577mil or about RM1,120 psf.

Further down the road and located in a corner of Jalan Tun Razak and Jalan Ampang is Goldis Tower, which would be developed by Goldis Bhd, a company in which IGB Corp Bhd has a 27.28% equity stake. The development is actually two 30-storey towers comprising corporate suites and a boutique hotel with a GDV between RM500mil and RM600mil.

TTDI Development Sdn Bhd is the most recent of developer to enter the property development scene in the area with the announcement of the development plans of the 9.1-acre Platinum Park, an integrated development comprising both commercial and residential elements.

Located along Jalan Stonor near KL's oldest condominium, Desa Kuda Lari, the project will have three office towers of 33-, 38 and 50-storeys, one 30-storey condominium block and two 42-storey condominium blocks and a 30-storey serviced apartment tower with a total GDV of RM3.5bil. The 50-storey office tower was sold to the Federal Land Development Authority for RM640.7mil recently.

Office buildings are by no means the only type of commercial property development in the KLCC vicinity.