Leasing challenge for TRX
Saturday, 22 Sep 2018
THE existing trend of rising office vacancies in the Klang Valley is making leasing a challenge for the Tun Razak Exchange (TRX), with about 4 million sq ft of new office space expected to be ready by the first quarter of next year, real estate personnel say.
Real estate personnel face two challenges, the asking rent and the infrastructure which is yet to be ready.
“Infrastructure, the ingress and egress, have to come up to speed,” says an agent who wants anonymity. Real estate agencies are trying to manage expectations.
The initial asking rent of RM17 per sq ft (psf) sought by the Exchange 106 may come down to the region of between RM11 and RM12 psf, sources say. This would be similar with office space in Kuala Lumpur City Centre (KLCC), specifically the Petronas Twin Towers and other super prime offices in the area.
More than half of the new office space expected to complete soon includes the 2.6 million sq ft from Exchange 106, a six-star office tower by Indonesian Mulia Group. Its floor area is about 34,000 sq ft, among the largest. The Finance Ministry (MoF) has a stake in that building.
“The timing is not right. They (owners of Exchange 106) will be competing with the stock that is already in the market, and those that are entering the market at about the same time,” the industrial source says.
“The infrastructure, the ingress and egress leading into and out of TRX are fantastic but they are not ready. Even if tenancies were to end by the end of this year, they (potential tenants) will not be able to move in by the first quarter. They will need months to get the place ready. How are they going to do that when the infrastructure – the ingress and egress – are not ready?”
The source says practically every real estate agencies are involved to lease the space there although there are some key ones taking potential tenants for viewing.“It is unfortunate that the building will be completing at about this time,” the source says.
Another source says thus far, the views of the real estate agencies have been taken positively by the Mulia team. “Out of 2.6 million sq ft, they are willing to be flexible for the first 600,000 sq ft. Before the May 9 2018 election, they say about half of the space were pre-leased. Post-election, that has gone down to 4%,” the source says.
As property consultants hurdle together wondering about its outcome – they want TRX to succeed – they are wondering what’s the road ahead going to be like.
Exchange 106 which is phase one of TRX project will be ready for occupancy by early 2019, according to TRX City Sdn Bhd CEO Datuk Azmar Talib in a June report.
In a way, the successful leasing of Exchange 106 will separate the men from the boys in the real estate fraternity. Exchange 106’s initial asking rent was RM17 psf. This compares with the average RM7 to RM8 psf of Grade A office space in the city.
The Petronas Twin Towers is considered super prime with average rental at between RM11 and RM12 psf.
The 27-storey Menara Prudential built and owned by IJM Corp Bhd
will also be ready at about the same time but this will be occupied by the insurance group.“In time, TRX will be fine. HSBC and Affin will be there. Other banks and financial institutions will move over there. But all this will take time,” he says.
A bit of history is needed here. When Putrajaya offices were completed many years ago, building owners asked for the same rental rates as KL office space. Their rationale was that, Putrajaya will one day be the new capital. As the years passed, it became evident that the rental they were seeking was unsustainable and unrealistic.
Today, Putrajaya offices have high vacancies.
As Australian infrastructure and property group Lendlease speeds up its development of its mixed use retail mall on 17 acres known as The Lifestyle Quarter, eyes are on other mall space vacated by retailers.
Like Exchange 106, real estate agents are wondering how the 1.3 million net lettable area, estimated to be completed in 2020/21, is going to be filled.
“Rent is a function of turnover. If a shopper walks into a mall and buys something, that contributes to the rent. If shoppers do not buy, the rent will not be sustainable,” a source says.
The Klang Valley also has an abundance of retail space.
As the saying goes, too much of a good thing need not necessarily be good. This is being played out right now as owners work with agents. Since late 2017, Lendlease has been seeking out potential tenants apart from the three main anchor tenants, Seibu departmental store, Dairy Farm supermarket and cinema operator GSC.
With average retail rental at Suria KLCC and Pavilion KL between RM20 and RM25 psf, Lendlease Asia chief executive officer Tony Lombardo holding his asking rent close to his chest.
“It could be less,” Lombardo’s response.
The last several months, work has speeded up considerably. Funding has been assured and this is expected to be completed by the end of October. This assurance of financing is significant.
Lendlease was among the first to wade into TRX in 2014. It is the only company to have signed a joint venture agreement with TRX City Sdn Bhd, then known as 1MDB Real Estate Sdn Bhd (1MDB RE), the property arm of 1Malaysia Development Bhd (1MDB) and the master developer of TRX.
When the 1MDB saga peaked in 2016, and even before then, banks were wary of exposure to 1MDB and its entities and were reluctant to lend.
The government pumping RM2.8bil into TRX on a staggered basis to ensure its completion until 2024 lifted the pressure a bit. New challenges are round the corner.
Over the month of September, despite the many public holidays, sources say the number of cranes deployed rose dramatically.
Besides the mall, there will be a 250-room hotel and 2,326 units of serviced apartments, according to Lendlease latest financial results.
TRX is Lendlease’s first urban regeneration project in Malaysia. The Australian group is also involved with SP Setia Bhd
’s Setia City Mall in Shah Alam. Sources estimate occupancy is at around 95%, average gross rent is between RM7 and 8 psf.The retail quarter success is crucial for Lendlease as it is seeking to expand its footprint in the region.
Lendlease has allocated RM4bil for new projects in Asia and Lombardo would like to secure two to three large scale urban regeneration projects in Malaysia or other parts of Asia over the next couple of years.
It is also building Singapore’s Paya Lebar Quarter, a mixed integrated development.
As the Australian developer builds its sales gallery to launch its serviced apartments, sources say WCT Holdings Bhd
, with a 20% stake in its residential development, is also seeking to launch theirs.WCT is developing the TRX infrastructure, the payment of which was settled partly through a 1.65-acre parcel. It is currently seeking a place to set up its sales gallery, sources say.
WCT group is led by Malton’s Tan Sri Desmond Lim Siew Choon. The two major owners of WCT Holdings Bhd sold their stake in the company to Lim in November 2016, according to a Bursa filing. Lim bought the WCT stake about a year after WCT won its infrastructure contract work in TRX.
Lim is best known for shopping mall Pavilion KL and another two upcoming Pavilion development in Damansara Heights and Bukit Jalil.
WCT oversees the infrastructure development within TRX while the Naza group has secured a major upgrading works in Jalan Tun Razak earlier this year which will connect into TRX and beyond, which will boost TRX’s connectivity. A third company Gadang Holdings Bhd
is also involved in engineering works at the MRT TRX Plaza.As agents try to cut leasing deals with local and international potentials for office space, and work flow speeds up at The Lifestyle Quarter with two eight-hour shifts and staff clocking 22 hours a day, six days a week, the comparatively slower pace at which infrastructure works are being carried out is adding to the already challenged over supply environment.
A industrial source sums it well. “If TRX does not take off well, bearing in mind this is one of our very prime development, this will be a shame for all of us Malaysians.”