THERE is unlikely to be new purpose-built office building projects on the island in the near future in view of the glut of office space and high construction cost.
On the island, there is an overhang of 2.8 million sq ft of office space with occupancy rate of 74%, compared with about 72% in 2005.
The total available purpose-built office space in George Town as at end last year was about 11 million sq ft, a large portion of which is in purpose-built office buildings developed 10 to 15 years ago.
These properties are not in demand because they lack information technology (IT) infrastructure and facilities and are not well maintained.
Developers were also unwilling to launch more of such buildings due to the high construction cost.
The construction cost and land value for per square foot of commercial space is about RM210, while the selling price per sq ft of the commercial space is RM250 to RM300, which is less than the 30% profit margins generally looked for by developer.
Current rentals of conventional purpose-built office space on the island ranged between RM1.50 and RM2.50 per sq ft while the modern purpose-built office buildings with IT features command a rental of above RM3 per sq ft.
The modern purpose-built office building projects being developed on the island were now in Bayan Baru. They include the recently completed SunTech and the IJM headquarters in Metro-East.
The 23-storey RM100mil SunTech by Emerald Capital Group is almost 100% sold. “The building has the latest IT-MSC infrastructure and facilities. The rental is RM2.60 to RM4.20 per sq ft,” he said.
Demand for pre-war properties was slightly stronger as there was limited supply of such properties for commercial use.
Many of these houses are also highly sought after because they are strategically located on main roads.
The present value of a pre-war property in George Town is around RM600 per sq ft. A 3,200 sq ft pre-war property on Campbell Street was recently sold for about RM2mil.
On the retail sector that also faces a glut (occupancy rate is 70% compared with 72% in 2005), there was 13.9 million sq ft of retail space, of which 70% was occupied while new supply stood at 1.2 million sq ft.
The new retail space include such projects as Jusco in Bandar Perda, Penang Times Square, D'Piazza, Wikiworld, Mutiara Parade, Farlim Megamall, Gurney Plaza Phase 2, and Gurney Paragon.
The oversupply situation has not improved since 2005 as the market is still tough.
The rising cost of living and declining purchasing power have worsened the situation. Many Penangites will visit shopping centres during weekends, but their expenditures are expected to drop in the next few months.
Ground floor rentals ranged between RM9.50 per sq ft and RM30 per sq ft for malls in prime locations such as the Queensbay Mall and Gurney Plaza. Meanwhile, those in the heart of George Town ranged between RM4 per sq ft and RM28 per sq ft.
The average rental rate has remained more or less the same over the last few years.
The state government should work with the private sector to revive George Town by having new business themes for different precincts in the inner city.
The state government could offer incentives for businesses like traditional medicine, souvenir or local produce and designating certain streets in George Town for them.
This type of planning would help absorb the existing commercial properties in the inner city and enhance George Town’s appeal as a tourist hub.
Sustainable development, in the form of environmentally friendly policies, is key towards unlocking the value of commercial properties in George Town.
There was also a need for more parking facilities, improved drainage system to overcome flash flood, and quality public transport.
Monday, July 21, 2008
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