Malaysia: Lack of Green Buildings Diminishes Its Value

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THE economic theory is that the less the supply of something, the higher the price. But in the Klang Valley’s case where green buildings are concerned, the flood of office space in the metropolitan area has obscured the value of the green buildings there.

That’s the conundrum managers of some green buildings have found themselves in.

The objective of this article is not to single out any development or any parties. Instead, it is to draw attention to the fact that prudence and caution are needed moving forward, whether that control and restraint be from the local authorities, the lenders or the developers themselves.

MGPA (M) Sdn Bhd general manager Patrick Liau is managing one of Kuala Lumpur’s newest and finest integrated development known as The Intermark located at the intersection of Jalan Ampang and Jalan Tun Razak in downtown KL.

“(But) office rentals are expected to be flat the next three years,” says Liau.

That’s the irony facing Greater KL office market – rents that do not commensurate with the quality of the buildings. Macquaire Global Property Advisors (MGPA) is an Australian-based private equity real estate advisory firm.

The Intermark comprises Vista Tower, Integra Tower, Intermark Mall and Doubletree Hotel by Hilton Kuala Lumpur.

The asking rent for Vista Tower is RM9 per sq ft and Integra Tower, with LEED Platinum pre-certification, is RM11 per sq ft; way above the RM7-RM7.50 per sq ft sought by Grade A buildings. The landlord can ask, whether the tenant will pay is another matter.

Although in terms of location and other factors The Intermark may not have the primacy of the Petronas Twin Towers (RM12 per sq ft), the development of about 2 hectares is one of the finest in terms of building quality and overall integration.

The other green buildings in that vicinity include Menara Binjai and G Tower and further away Menara Felda.

There are today, various benchmarks for green buildings. There is the US’s LEED certification, Singapore’s Green Mark and Malaysia’s Green Building Index. Although some of the criteria sought by overseas accreditation systems may not be all that suitable for Malaysian real estate, these benchmarks nevertheless carry with them certain bearings, says Rehda (Real Estate and Housing Developers’ Association) environmental committee chairman Sam Tan. Platinum is the highest and most stringent within the LEED system.

“We have to separate two issues here – a green development and the supply situation. At the end of the day, the green portion is an added advantage. The green initiative will make a development more attractive but it does not detract from the fact that location, and other factors, are important criteria when it comes to real estate,” says Tan.

The Intermark stands above many office buildings in the Klang Valley because it comes with it a good mix of services and amenities.

Besides its anchor Doubletree Hotel, there are six retail floors of more than 200,000 sq ft with a food hall and a supermarket due to open in June.

Liau admits that there has been a lot of talk about the oversupply of office space in the Klang Valley with constant reference to the various mega projects currently being planned.

“We believe that this particualar area within a 2km-3km radius around the KLCC serves a particular market and if one were to focus on this part of the city, there is not much supply,” he says.

“With the Petronas Twin Towers now fully occupied, The Intermark will benefit from the overflow,” he says.

Property professionals say the hotel and retail conveniences are added advantages but the Intermark’s location is not premium, although the building owner has linked a pedestrian bridge from that development to the Ampang Park LRT station.

The Australian-based private equity real estate investment company bought a portfolio of assets in 2007 then known as Empire Tower, City Square, Crown Princess and Plaza Ampang and redevelop the site at an investment of RM2.2bil. It was felt at that time that there was a lack of mixed integrated development built to international standards. It is currently the largest foreign real estate investment in Kuala Lumpur.

Says Liau: “When we bought this, we were looking at the oil and gas (O&G) and the financial sectors (to occupy the space). At that time, the financial services sector was larger than the O&G sector.” Its banking tenants include BNP Paribas, Sumitomo Mitsui Banking Corp, UOB Bank Group and JP Morgan.

The global crisis in 2008 dried up demand.

The Intermark integrated development has a total of 2.5 million sq ft of net lettable area. “We are confident of filling up 50% of our net lettable area of 777,000sq ft by year-end,” says Liau at the launch of Integra Tower. It is more than 40% occupied today.

Vista Tower is about 70% occupied. An office building should be 75% filled before property professional consider is as “stable”.

There are a quite a number of very prime and new buildings around the KLCC area. Among them include Menara Felda, Menara Binjai and Menara Prestige near Jalan P. Ramlee.

Next year, 2014, will see more than 2 million sq ft new space with the expected completions of Menara Hap Seng 2, Naza Tower @ Platinum Park, Menara Bangkok Bank @ Berjaya Central park, IB Tower and KL Trillion.

In 2015, the development of Quill Vision City in Jalan Sultan Ismail (fronting Sheraton Hotel) and the Public Mutual Tower will be adding another 900,000sq ft to the market.

 

Source: The Star Online

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