KUALA LUMPUR: The demand for office space has declined due to slowing growth with the rent-free period rising from the usual one month normally sought for renovation purposes to as high as six months, according to JLL Property Services (M) Sdn Bhd country head for Malaysia YY Lau.

JLL is part of the New York-listed Jones Lang LaSalle services and investment management firm.

The demand for rent-free periods will be a feature of the 2017 office leasing market, she said at JLL-KLInvest’s 2016 Update & 2017 Market Outlook: Is Malaysia still an attractive real estate invesment destination?

“The demand for rental to come down, rent-free negotiations, free car park and other ways to reduce cost will be some aspects of the office market this year,” Lau said.

Lau divides the office market into four but focuses on three core areas like the city centre or KL central business district, KL fringe which includes KL Sentral and Damansara Heights and decentralised areas like Petaling Jaya, Shah Alam. The fourth is administrative centres like Putrajaya and Cyberjaya.

Rent fell in 2016 and will be softer this year. How much it will soften before it recovers will depend on the four locations but super prime site like the Petronas Twin Towers in the KLCC area is RM13 per square foot (psf) and this will not drop, she said.

Lau said the city centre has been experiencing an over supply since 2012. Previously, landlords may want to charge anything between RM7 psf and RM10 psf depending on the location and the type of building. Green and Multimedia Super Corridor (MSC) status buildings which come with better Internet/digital infrastructure are generally preferred by some tenants.

Assuming the rental of rental of prime Grade A office space averages about RM7.50 psf, Lau said landlords at present were “more flexible” and rental was on the “reducing trend” of about 10%.

“This is just an average. It does not mean that all the buildings in a particular area have a 10% drop,” she said.

There is no over supply in the decentralised areas and rental has not really dropped.

What is acceptable depends on whether it is a new tenant, length of stay, space occupied and other aspects, Lau said.

“We began to see more flexibility on renewals last year,” she said.

She said there was a time around 2008 when some buildings were 100% occupied even before it was completed, this being Jaya33 in Petaling Jaya. But those days are over.

Another feature of the office market is that no particular sector dominates the overall market but there may be strong sectoral features on a location basis.

In the city centre, engineering services has a 58% of the leases from the second quarter of 2015 to the last quarter of 2016, in the KL fringe area IT companies have 31% of the leases, while in decentralised area, pharmaceutical firms have 47% of leases.

Spikes in demand will be focused on projects with good connectivity, said Lau, adding that the Mass Rapid Transit system will be a game changer.

Invest KL CEO Datuk Zainal Amanshah said the improved public transportation may one day mean the introduction of city charges when vehicles enter the city.

“Any city which modernises and introduces public transport will inevitably consider a CBD charge. Whether the authorities in Kuala Lumpur will do this, I cannot comment,” Zainal said.

Zainal, tasked to bring in 100 of the world’s largest multinational companies, said with three years to the 2020 deadline, he has met a 60% target to date.

“Some of these 60% are new, some have been here for quite some time but the important point is, they are doing new activities,” he said.