Will Hybrid Working Models Affect the Local Office Market?

With all states in Malaysia currently in the fourth and final phase of the National Recovery Plan (NRP), all economic and business sectors are reopening to a new normal in compliance with stringent SOPs.

According to the office market report of Knight Frank Malaysia’s Real Estate Highlights 2nd half of 2021, the lockdown in 2020 – 2021 has accelerated the adoption of remote and hybrid work arrangements among businesses. Some companies, especially MNCs, are evaluating their future workplace strategy as physical office space remains important for collaborating, maintaining and boosting productivity levels among employees.

Some MNCs are taking advantage of the lower / competitive rentals to move into high-quality CBD office space. It is also a good opportunity for flight to quality. According to the Asia-Pacific Prime Office Rental Index for Q4 2021, there was a 0.3% quarter-on-quarter increase, the first uptick of rent rise since Q3 2019 with the overall index down 1.8% year-on-year.

Although overall vacancy remains elevated at 12.8%, but office rents are likely to have bottomed out. This is in view of the improving business sentiments and a gradual and more sustainable return to workplaces and hybrid working arrangements.

Corporates and companies alike are trying to find a balance between driving growth while maintaining operational and cost efficiency, hence there is growing interest in the co-working segment especially among corporations or companies who wish to mitigate risks amid challenging operating environments. The flexibility of co-working space enables them to scale up or scale down their workforce (occupied space) depending on their business needs and market conditions.

The Klang Valley office market continues to remain tenant-led, especially in KL City, where the rental rates and occupancy levels of office buildings are experiencing downward pressure. The overall occupancy rate of purpose-built office space in KL City dipped further to record at 65.5% during 2H2021.

“Co-working space, which offers readily available fully fitted office space, grants companies the ability to meet their operational needs quickly. The flexibility of co-working space further allows corporate planners to scale up or down depending on their growth models. It is an attractive option which many organisations are exploring and will be a continuing trend as businesses remain cautious on new COVID-19 variants,” Teh Young Khean (photo above), Executive Director of Corporate Services Knight Frank Malaysia said.

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