22 AL-SALĀM REIT MARKET REPORT SUMMARY ANNUAL REPORT 2023 Iskandar Malaysia’s (IM) purpose-built office (PBO) market is experiencing heightened competition, contributed by the substantial influx of new completions in 2023: North Tower in Mid Valley Southkey and Sunway Big Box Office Tower @ Sunway City Iskandar Puteri. About 507,000 sq. ft. of new space has pushed total supply to 5.9 million sq. ft., increasing the vacancy rate to about 50.0% compared to 35.0% in 2022. On upcoming supply, the construction of Medini 10 is slated to resume in 2024 with about 415,000 sq. ft. of space. South Tower in Mid Valley Southkey, UMCity Premium Corporate Office Tower and Menara Bank Rakyat @ Coronation Square are also set to be completed by 2024, totalling about 987,000 sq. ft. of office space. Following that, a co-working space operator will be located in UMCity Premium Corporate Office Tower whereas Menara Bank Rakyat @ Coronation Square will depend on the owner’s occupation. Older PBOs with inadequate amenities are struggling to retain their existing tenants while landlords of newly completed buildings that provide value-added features including Malaysia Digital (MD) accreditation are in a better position to negotiate with prospects. Co-working space operators have been actively expanding in Iskandar Malaysia (IM), including two branches by INFINITY8 in 1H2023 and one by Regus in UMCity Premium Corporate Office Tower after the completion of the office tower. IM co-working space operators may continue to benefit from the paradigm shift in working modes which may pose some pressure on conventional purpose-built office (PBOs). IM PBO supply is beginning to outpace the market demand. While the overall PBO occupancy is anticipated to experience a downturn with the completion of the incoming PBOs. However, rental rates for prime PBOs are expected to hike due to higher costs. Co-working space is rivalling conventional PBOs, hence which landlords should adapt by providing more flexible office solutions while enhancing the quality of space. Cumulative supply Vacancy Rate (%) 2016 2017 2018 2019 2020 2021 2022 2023e 4. OFFICE Supply and Vacancy Rate of PBO in IM Notable New Purposed Built Offices Completions in IM Source: CBRE I WTW Research Source: CBRE I WTW Research 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 60% 50% 40% 30% 20% 10% 0 Development Locality Est. NLA (sq. ft.) North Tower @ Mid Valley Southkey Johor Bahru City Fringe 327,000 Sunway Big Box Office Tower @ Sunway City Iskandar Puteri Iskandar Puteri 180,000 Total New Supply 507,000 cumulative Supply (million sq. ft.) Vacancy Rate (%) Branch Type of Space Occupied Operator Location Size (sq. ft.) Newly Launched Kongsi Work (Molek) Office space in shop office INFINITY 8 Tebrau 10,000 INFINITY 8 Reserve Mid Valley Southkey PBO INFINITY 8 Johor Bahru City Fringe 14,000 Incoming UMCity Premium Corporate Office Tower PBO Regus Medini N/A (Extracted from CBRE/WTW Market Outlook Report 2024) Source: CBRE I WTW Research Notable Co-Working Space Expansions in IM
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