Property
A new KL city centre in the offing
Joseph Wong 
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MALAYSIA’s next tallest tower, PNB 118, a geometrically intricate 118- storey structure is expected to grace the Kuala Lumpur skyline within the next two years.

It will feature 83 floors of premium office space, with the top 17 floors to host the 5-star Park Hyatt hotel. The hotel will feature approximately 200 guestrooms and suites that are designed to give a panoramic view of the city.

There will also be nearly 20,000 sq ft of meeting space for conferences and events in the hotel.

The remaining floors comprises a retail podium and the 30-long-stay serviced residences.

Not surprisingly, the PNB 118 tower, which is part of the RM3.5 bil Merdeka 118 project, is a head-turner. Permodalan Nasional Bhd (PNB), a government-linked investment company, is slated to make PNB 118 its new headquarters.

“PNB 118 is a geometrically intricate 118-story office and hotel tower that will be home to the headquarters of Permodalan Nasional Bhd (PNB), one of the country’s leading investment firms.

“With a completed height of more than 600 metres, PNB 118 will become the tallest building in Malaysia, and rank amongst the world’s 10 tallest buildings,” says global real estate services firm JLL Malaysia research and consultancy department assistant manager Gregory Wong.

To add to its value, the mega tall tower is pursuing a rigorous environmental programme and is seeking triple platinum sustainability certification under the US Green Building Council’s Leadership in Energy and Environmental Design (LEED) programme, the Malaysian Green Building Index (GBI), and the Malaysian GreenRE programme, he says.

“A retail mall connects PNB 118 with the accompanying smaller residential towers, and features a connection to Kuala Lumpur’s public transit via a new MRT station. The 130,000 square metre (1.4 million sq ft) mall will provide space for more than 320 stores,” he says.

It is set to regenerate the older part of the city centre and bring the real estate landscape in Kuala Lumpur to new heights, says Wong.

Despite all the glitter surrounding this mega project, there are many underlying concerns especially with the current oversupply of offices, according to property observers.

 

Office vacancy issues

“Naturally, every developer wants to paint a positive picture of his or her project. This one is may be a little more so, being such a huge project,” says an observer.

“Otherwise who is going to lease or buy into their project, right?” he laughs.

The PNB 118 tower, on completion, will add about 1.8 million sq ft of office space on the market.

“The current oversupply in the office market has led to tenants moving to newer buildings with better rental packages. This has resulted in short-term tenancies, and leaving older buildings with lower occupancy rates,” notes real estate consultancy firm ExaStrata Solutions Sdn Bhd CEO Adzman ShahMohd Ariffin.

“What may happen now is that (the existing) Menara PNB (in Jalan Tun Razak) may experience vacancy as a result of the move to PNB 118,” he says.

PNB 118 will be the new headquarters for PNB, with about 77% of the office floors occupied by the investment group and its subsidiaries, says JLL’s Wong.

The consolidation of PNB and its subsidiaries into a single location may simulate the same effect as what happened with the KLCC and oil & gas companies. As a result, PNB’s vendors and the subsidiaries of the vendors, may choose to relocate there.

“This may be a concern since the 23% left to fill up will draw tenants from other buildings, resulting in a drop in overall vacancy rate in the city,” adds Adzman.

“Unless there is major absorption of office space in the next two years, come 2020, the average occupancy rate of buildings in KL will drop further,” he says.

Moreover, PNB 118 isn’t the only office development vying for occupancy. Exchange 106 in Tun Razak Exchange (TRX) and the Stride tower in Bukit Bintang City Centre (BBCC) will be also competing for tenants.

To date, the nearly completed Exchange 106 has signed up some large institutions as tenants. Sources say up to 47% of the 2.6 million sq ft of the floor area of Exchange 106 has been formally signed, with 9% under negotiation.

Constructed by one of Indonesia’s largest commercial property developers, the Mulia Group, the asking rent of RM17 per square foot (psf) despite current concerns of the oversupply of office space in the Klang Valley, is surprising indeed.

However, according to Savills Malaysia executive chairman Datuk Christopher Boyd, the various incentives and favourable tax practices given to Exchange 106 are equivalent to about RM2 psf.

This means the effective rental is lower than RM17 psf in comparison to the RM13 psf sought by Menara 3 Petronas, which is part of the Petronas Twin Towers development.

On the other side, the RM8.7 bil BBCC project has the 46-storey Stride tower, comprising 341 units, also with Grade A amenities.

In an earlier report, Eco World Development Group Bhd, the developer of BBCC, revealed it was in negotiations with an anchor tenant.

Observers point out that these new towers were unlikely to face occupancy issues. It is those older premises which will see a migration of tenants to the new towers, that will face vacancy issues.

 

Growing the city centre

From the tourism aspect, PNB 118 will be the new iconic building of Malaysia which will redefine the Kuala Lumpur skyline, so one would expect the development to feature unrivalled specifications, says Wong.

Like Menara KL and the Petronas Twin Towers, the upper levels of PNB 118 will include an observation deck – the highest in Southeast Asia.

“A sky lobby, restaurants, podium and amenities will be developed to offer unparalleled views of the Malaysian capital city,” he says.

The iconic building will definitely attract investors and tourists, which will further boost the country’s economy, he adds.

Adzman, along with other property observers, agree. “Such iconic buildings, especially those among the tallest structures in the world, will always attract visitors who want to appreciate such landmarks with unique design and concept.

“KLCC and KL Tower have been drawing tourists in droves since opening. PNB 118 will be a unique integrated development and with PNB’s deep-pocket investment, it is set to become the new attraction in Malaysia (and hopefully, draw in more investments),” he says.

 

Enhancing values

Adzman says developments like PNB 118 could enhance the value of their immediate surroundings through the improvement in infrastructure and wide publicity.

“A good example is KL Sentral and the Jalan Ampang stretch. This will however only happen if the owners of the surrounding properties take advantage by redeveloping in tandem with the iconic concept,” he says.

“The KL City Centre originated in the old CBD (central business district) in the early days and later expanded northwards to the Golden Triangle when KLCC was developed.

“Now that Jalan Ampang, Golden Triangle and Bukit Bintang are almost fully developed, it is natural for development to take place further away where there is ample space.

“The Stadium Merdeka locality presents good potential given its proximity to Bukit Bintang and will help to expand the Greater City Centre further. [Moreover], the retail centre is a good attraction to anchor mega developments and bring traffic,” Adzman says.

 

Connectivity and accessibility

Observers can’t fault the construction of PNB 118 on its transport-oriented development (TOD) status. It has established and well-planned access, especially by the mass rapid transit (MRT), says an observer.

The PNB development is, in fact, bolstered by two rail lines nearby – the Sungai Buloh-Kajang line (MRT1) and the Sungai Buloh-Serdang-Putrajaya line (MRT2).

According to Land Public Transport Commission (SPAD) data on the ridership of MRT 1, which has been fully operational since July 2017, there were a total of 9.3 million passengers and 10.4 million passengers in 3Q17 and 4Q17, respectively.

Upon the full completion of the MRT in 3Q17, a nine-fold increase in ridership was observed.

Once completed, MRT 2 will serve a corridor with a population of some two million stretching from Sungai Buloh via the CBD of Kuala Lumpur to Bandar Malaysia, Kuchai Lama and Serdang before ending at Putrajaya.

The 52.2km line is expected to have a ridership of 529,000 passengers per day.

“The accessibility provided by both new MRT lines and the existing rail lines into PNB 118 will drive demand for office space at PNB 118 as it would attract talents to the submarket,” says Wong.

“Aided by the connectivity from the rail lines and infrastructure improvements by road and the right tenant mix of the 1.4 million sq ft retail mall supporting the PNB 118 tower tenants, PNB 118 will be positioned to be the upcoming iconic location in Kuala Lumpur,” he says.

 

High hopes

“We have seen the success of some of the integrated concepts with convenient amenities and good connectivity in the fringe areas of Kuala Lumpur and we believe the same is likely to hold true for PNB, which has an added location advantage of being nearer to KLCC (both by MRT and by vehicle).”

Skyscrapers have a powerful role in revamping the physical landscape of a city, transforming the skyline and catalysing urban growth, says Wong.

“The birth of yet another iconic building, PNB 118, is set to regenerate the older part of the city centre and bring the real estate landscape in Kuala Lumpur to new heights.

“The development will bring office and retail space as well as residential developments. All of these components, which enable people to live, work and play, further strengthened by the well-planned accessibility and connections, are in line with the lifestyle expectations of the millennial workforce generation and the nation’s ambition to enhance the city’s liveability,” Wong says. FocusM



This article first appeared in Focus Malaysia Issue 298.