Valuers: Owners of old buildings will have to bite the bullet

THE EDGE WEEKLY ISSUE#991

THE WEEK OF DECEMBER 2 – DECEMBER 8, 2013

Cover Story @ p75

As redevelopment gathers momentum in the Golden Triangle, owners of buildings built in the 1970s and 1980s will have to heed the trend of tenants favouring higher quality buildings and better locations.

Areas like Jalan Raja Chulan and Jalan Sultan Ismail in KL, which were once prime locations, have seen rents slip while locations in Jalan Ampang and Jalan Tun Razak are now gaining in popularity.

Furthermore, with the upcoming Tun Razak Exchange (TRX), the quest to retain tenants in what are now considered the fringes of KL is intensifying.  “Owners of buildings built in the 1970s and 1980s will have to bite the bullet.  Their buildings will have to undergo extensive renovations or redevelopment earlier than expected as we see TRX become a landmark in the same way as KLCC when it was completed.  After all, snakes have to shed their skin,” Christopher Boyd, executive chairman of CB Richard Ellis Malaysia Sdn Bhd (CBRE), tells The Edge.

Even before Petronas Twin Towers were completed, analysts were predicting that property values in the vicinity would shoot up and true enough, in the late 1990s, there was a convergence on the area.  It is worth noting that it was only when the towers were fully completed that values rose. 

Between 1999 and 2006, developers could not get planning permission for office buildings in the city centre – this was to protect the Petronas Twin Towers and the surrounding areas – and instead resorted to constructing residential towers.  It was only in 2007 that office space started flooding the market.  Boyd says property hot spots like those in Jalan Raja Chulan and Jalan Sultan Ismail are now losing their appeal and area a “hard sell”.

Howeve, Knight Frank Malaysia executive director Sarkunan Subramaniam believes these locations are still desirable, although demand is shifting to Jalan Ampang and Jalan Tun Razak.  In fact, he says not too long ago, these addresses were favoured because of the sprouting of high-grade offices there.

“I honestly don’t believe they (Jalan Raja Chulan and Jalan Sultan Ismail) are losing their appeal.  There will still be companies that don’t want to be in the KLCC area and prefer to be on the fringes of the city centre.

“Instead, I think there will be a relocation of business types as TRX comes on the market,” he says.

Alternatively, given the success of E&O’s St. Mary Residences in Jalan Tengah, off Jalan P Ramlee, Sarkunan says there may be a case for those towers to be converted into residences.

“Development does not necessarily mean hotels or offices.  It could be an entertainment centre or residential development.  Proper studies need to be done to evaluate what can be done with those small plots of land and older premises (in the area).”

Associate director of CBRE Nabeel Hussain cautions that although luxury hotesl have mushroomed in KL, this model is not one that guarantees high returns.

“Hotels in KL generally don’t make much money because room rates are very low.  Standalone hotels are tough.  If you notice, the ones that are doing better are those that have residences coupled to them.  Grand Hyatt is the only high-end hotel that was recently built without any condos offered for sale,” he says.

Nabeel opines that once TRX, which has a GDV of RM26 billion, gets off the ground, property prices in the areas closest to it – Jalan Tun Razak and Jalan Bukit Bintang – may increase.

“KL started in the Bukit Bintang-Chinatown area, then crept up to Jalan Raja Chulan-Jalan Sultan Ismail area and shifted to the KLCC area.  With the rise of buildings like The Intermark and Integra Tower, the focus is now on Jalan Ampang and Jalan Tun Razak.

“Right now, KL has reached a point where it cannot go east any more because it will encroach on the embassy area.  So, it will have to go south towards the TRX and areas near the Royal Selangor Golf club or Prince Court Medical Centre.  Once TRX is ready, we will see prices pick up in this area,” he tells The Edge.

While there are concerns that TRX could cause a glut of office space in the city, the consultants are confident that 1Malaysia Development Bhd, the developer of TRX, will release the 70-acre site to be developed in stages and is carefully planning the area’s master plan.  Moreover, the first phase is only expected to be ready in 2018.

Be that as it may, property owners will probably set up their game in anticipation of TRX, which looks like the next growth spurt for development in KL.