While the pandemic has driven many businesses to close, technological companies have grown in the two years since the implementation of Movement Control Orders and its various incarnations. This is a positive sign for the office renting market.
According to JLL Property Services (Malaysia) Sdn Bhd and Knight Frank Malaysia, the majority of office space occupied by tech businesses is on the outskirts of Kuala Lumpur.
“The KL Fringe district is dominated by technology industries. However, they are dispersed throughout numerous buildings. According to YY Lau, JLL’s country head, the occupancy rates of these buildings can therefore vary considerably.
“These buildings typically have occupancy rates between 70% and 90%, or greater. The office leasing consulting team at JLL has aided a number of technology companies in establishing or extending their presence in these areas.
Knight Frank Malaysia executive director of corporate services Teh Young Khean concurs. According to our observations, the majority of prominent technology businesses, including Google, SAP, Lazada, Shopee, Samsung, Klook, and Alibaba, are headquartered in KL Fringe, in sub-locations such as KL Sentral, Bangsar, Mid Valley City, KL Eco City, and Bangsar South.
He adds that these locations offer advantages such as good connectivity via roadways and public transport; proximity to densely populated residential areas where the majority of the talent pool resides; being strategically located between Kuala Lumpur city and Selangor, allowing for shorter commutes; competitive or attractive rental packages; a greater concentration of buildings with Multimedia Super Corridor (MSC) status; and an abundance of amenities and eateries.
“There is no specific breakdown for tech occupants. “However, as of 4Q2021, KL Fringe had an average rental rate of RM5.60 psf per month with an anticipated average occupancy of 86.4 percent,” explains Teh.
Tech businesses’ demand for office space has increased as a result of the expansion of e-commerce and other forms of online services, which has been a windfall for the office rental market due to low rental rates and an abundance of available office space.
“Demand for office space among tech businesses has been resilient, as JLL has observed this industry’s exponential rise despite the epidemic. These enterprises are expanding into prominent buildings in order to take advantage of the low leasing costs. We also observe that the technology industry has been a key demand driver on the leasing market into 2021,” says Lau.
“Despite the ongoing trend of digital transformation and companies increasingly allowing remote work, physical offices are still in demand because they remain an important aspect of work, as spaces where employers can interact with employees, uphold company culture, and add a social element to the workplace. Moreover, owing to the massive incoming supply, we anticipate that rental rates will remain generally advantageous over the next few years,” she continues.
The e-commerce boom, according to Teh, has increased demand for both office and industrial space. “In accordance with the government’s goal of achieving a digital economy contribution to GDP of at least 25.5% by 2025 and becoming a technologically advanced, digitally driven nation and the regional digital economy leader by 2030, as outlined in the MyDigital initiative, we anticipate that this expanding sector will remain active.
Historically, the oil and gas industry and the financial sector have been the largest office market tenants in the Klang Valley. It is encouraging to see that tech companies are becoming a significant source of demand.”
Specific requirements
When it comes to leasing office space for their operations, tech companies have special requirements. Both real estate specialists have found that proximity to amenities, public transportation, and dining establishments is a significant factor. However, several essential and desirable conditions have also been observed.
“During the site study and assessment phase, IT companies are more likely to consider buildings in MSC Cybercities and Cybercentres than other structures. Mid Valley City, KL Sentral, Bangsar South, Bandar Sunway, and Bandar Utama are among the established MSC Cybercentres or Cybercities,” says Teh, who adds that MSC Malaysia has been rebranded Malaysia Digital.
Lau agrees with Teh that the MSC status of a building is an essential need. She adds that service rooms must be large enough to accommodate many server racks and equipped with high-speed internet, dual-power supply in the event of a blackout, 24-hour air conditioning or flexible air conditioning hours, and elevated floors so that wiring may be concealed underground.
According to Teh, security is also a must for computer companies. “Buildings with strong security features are in high demand since these businesses handle sensitive and valuable data. In addition to the standard staffed security system, the majority of densely populated buildings also have security elements such as turnstiles, destination-controlled elevators, and touchless or facial recognition systems.
Other needs include the availability of a co-working option allowing the flexibility to scale up or down as a temporary solution; that the space be completely fitted and move-in ready; meeting spaces for town hall meetings or training; and infrastructure space for a separate emergency generator set.
Lau explains that if the building is located in a remote area or has few amenities, then a coffee shop or booth in the lobby, a canteen or other F&B options, and a gym should be considered.
According to experts, the amount of space normally occupied by technology enterprises varies on their space requirements.
“Technology businesses in Malaysia have various space needs, depending on the scale of their operations in the country. “Companies with a large market presence may have very large space requirements, whereas companies just entering the market may need only a half-floor,” notes Lau.
Teh states, “Based on our observations, internet giants such as Google, Shopee, Grab, and IBM have a significant presence in the Klang Valley, with each holding more than 50,000 square feet.” Depending on the buildings and sub-localities, rental costs for tech companies can vary. Based on our observations, the monthly rent ranges between RM5 and RM9 per square foot.”
According to Lau, rental rates are determined by a variety of factors. “According to JLL’s Real Estate Intelligence Services (REIS) study and database, most tech companies are located in KL Sentral, KL Eco City, Mid Valley City, and Bangsar South. They are dispersed throughout numerous buildings and complexes… In general, buildings in these localities fetch asking rents between RM6 and RM8 per square foot per month, while our REIS contains more specific rental statistics.
“However, it is crucial to remember that rental costs can vary substantially depending on the size of the required, the landlord’s readiness to bargain, the occupancy, age, and quality of the building, and the tenant’s special needs, such as the need for additional wiring work,” she adds.
Tech businesses are anticipated to expand in the future, necessitating more office space.
“As JLL regularly watches the office market, our research indicates that the office market aimed primarily at tech businesses is expected to remain healthy as long as the industry continues to grow successfully,” adds Lau.
Teh concurs, stating, “Tech enterprises, such as e-commerce platforms, will continue to expand as public participation in these industries grows.” Supporting businesses like call centres and customer service centres will also benefit from their expansion.
He adds that other sorts of ICT enterprises, including fintech firms, digital banks, e-wallet platforms, and software developers, will also have upside potential in the future, and Knight Frank Malaysia anticipates their growth. As they are a part of the ecosystem that allows IT companies to scale, other industries, such as logistics and data centres, may also gain.
source from TheEdgeMarket