Will Remote Working/Hybrid Working Models Affect the Local Office Market?

Remote and co-working space continues to gain attention from companies, especially MNCs who are reviewing their future workplace strategy

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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 (“REH”), the pinch from the 2020 – 2021 lockdown 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 collaboration to maintain and boost productivity levels among employees.

Aside from that, it is also a good opportunity for flight to quality. Some MNCs are taking advantage of the lower / competitive rentals to move into high-quality CBD office space. 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.

Overall vacancy remains elevated at 12.8%, but office rents are likely to have bottomed out, thanks to improving business sentiments and a gradual and more sustainable return to workplaces and hybrid working arrangements.

Under this situation, there is growing interest in the co-working segment especially among organisations that 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.

Will Remote Working/Hybrid Working Models Affect the Local Office Market?
Teh Young Khean, Executive Director, Corporate Services Knight Frank Malaysia

Teh Young Khean, Executive Director, Corporate Services Knight Frank Malaysia highlighted, “with the successful rollout of the national vaccination programme leading to a gradual easing of restrictions (lifting of lockdown), we saw active enquiries and gradual recovery of the office market in Q3 and Q4 2021, especially in the co-working segment.”

“Restrictive SOP implemented throughout 1H2021, meant that market activity remained muted as organisations shifted to extend existing WFH models, which led to a dip in demand. Since restrictions were gradually eased across 3Q and 4Q2021, enquiries and demand for co-working space rose as businesses sought to return to work.

The remote and hybrid working models allow companies to have more space while evaluating the need to scale up or scale down their workforce (occupied space) depending on their business needs and market condition.

KL City was the initial focus area of many co-working operators, therefore, the growth of this market segment in the city’s sub-localities are well-established.

The trend of co-working space is starting to be increasingly prominent not only in Klang Valley but in other states in the country.

According to Debbie Choy, Director of Knight Frank Johor, “More companies are exploring

Will Remote Working/Hybrid Working Models Affect the Local Office Market?
Debbie Choy, Director of Knight Frank Johor

co-working space, a trend gaining popularity in Johor Bahru as it offers flexibility to scale business operations up or down during uncertain times. We have also noticed an increase in the occupancy of office space by co-working space operators in Johor Bahru in 2H2021. Common Ground made their debut into Johor’s market by commencing their operations at Medini 6 in Iskandar Puteri, Johor.”

“The asking rentals of office space in Johor Bahru have remained fairly stable when comparing 1H2021 and 2H2021. Like many other sectors, office landlords are eagerly awaiting the relaxation of the borders between Malaysia and Singapore to attract newer tenant pools.  Whilst the gross asking rentals are anticipated to remain stable, rental packages to incorporate and tailor to the needs of potential tenants are becoming flexible. With new office completions expected in 2022, the features and quality of these office towers apart from their locations will be among the key factors that may drive product differentiation,” she added.

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,” Young Khean concluded.

To find out more about REH 2H 2021,  click here