Property
Growing demand for Cybercentres
Ang Hui Hsien 
Bangsar South developed into the vibrant environment that it is now with the entry of both MSC and non-MSC companies
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IN the 20 years since Cyberjaya was launched under the Multimedia Super Corridor (MSC) initiative by former Prime Minister Tun Dr Mahathir Mohamad, the jury is still out on whether the Cybercity has truly become the region’s version of Silicon Valley.

While the MSC was all about making Malaysia an information and communications technology (ICT) power house, the move to set up Cybercities and Cybercentres nationwide is seen as a resounding success from a property development perspective.

Demand for properties with the MSC status is growing steadily, although their supply remains limited. The strong demand comes not only from companies with MSC status but also those which do not have the status as well.

According to the Malaysia Digital Economy Corp (MDEC), it continues to receive a steady stream of applications and enquiries about Cybercentre and Cybercity status from developers.

Despite the overwhelming interest in such premises and the increasing number of MSC companies, the growth of these properties is hindered by the limited supply.

MDEC figures show that over 3,000 companies have been granted MSC status but there are only 51 Cybercentres and Cybercities available nationwide.

Apart from Cyberjaya, the other Cybercities are Technology Park Malaysia, Kuala Lumpur City Centre (KLCC Tower 2), Kuala Lumpur Tower, Kulim Hi-Tech Park in Kedah and Penang Cybercity 1 (PCC 1).

The agency reveals that as of end last year, a total of 1,817 MSC companies are operating in Cybercentres and Cybercities nationwide, which are recording an overall occupancy rate of between 70% and 80%.

On average, MDEC – which oversees the MSC initiative – has been receiving about six Cybercentre status applications annually for the past few years, and 53 in total has been approved as of last month.

In recent years, some developers and companies have taken to renovating older buildings in order to obtain the Cybercentre status. A case in point is Wisma UOA Damansara II in Damansara Heights, Kuala Lumpur which underwent refurbishments and was granted the status in 2014.

Thuang says that MSC-status offices tend to fetch higher rentals compared to other commercial premises in the vicinity

However, Clarisse Thuang, a consultant with mscofficemalaysia.com, who specialises in the leasing and sale of MSC-status offices, says it is not a simple process.

“As a matter of fact, there are a few buildings in Kuala Lumpur’s city centre and central business district [CBD] that have been trying to apply for the MSC status for about a year, but it’s not that straightforward,” she reveals.

It might even be impossible in some cases where major modifications are required to comply with the MSC Malaysia Performance Standards.

The necessity of ensuring the building remains compliant also results in maintenance costs for owners, and penalties may be incurred if they fail to do so.

This is something that Thuang believes has contributed to the lack of Cybercentres and Cybercities despite interest shown by developers.

“There is no actual study on this but based on estimation, Cybercentres and Cybercities account for less than 30% of the entire office market supply in KL’s CBD, Golden Triangle, KL fringe [KL Sentral, Mid Valley and Bangsar South] and beyond KL [Petaling Jaya, Subang Jaya, Shah Alam, Sunway and Cyberjaya] cumulatively,” she says.

She adds the complicated application process that can take up to several years has also contributed to the limited supply.

MDEC, however, clarifies that the application process takes “only about four or five months”. “And anything longer is due to incomplete applications or non-compliance issues that need to be resolved first before they can proceed,” the agency tells FocusM.


Strict requirements

There are no major distinctions between Cybercentres and Cybercities in terms of their benefits and requirements, although the latter usually refers to bigger areas such as Cyberjaya and Technology Park Malaysia in Bukit Jalil.

As a rule, any type of office buildings can be Cybercentres or Cybercities, as long as they meet the MSC Malaysia Performance Standards. These standards include having access to at least two types of public transportation as well as a system that can restore electricity in under 15 seconds in the event of a power outage.

Such premises are typically more equipped infrastructure-wise to ensure uninterrupted round-the-clock operations of MSC-status companies.

Due to the strict requirements that buildings have to abide by before being granted the status, Thuang explains preparations to designate buildings as Cybercentres or Cybercities begin even before their construction.

The developers would have to consult experts and prepare a preliminary proposal that will be submitted to MDEC for review.

Upon completion of the buildings, they will have to undergo a compliance audit by MDEC to ensure they are designed according to requirements.

If everything is in order, only then will they be awarded the Cybercentre or Cybercity status – something which KL Sentral by Malaysian Resources Corp Bhd (MRCB) achieved in 2006.

The gap between supply and demand for MSC premises in the Klang Valley convinced MRCB to apply for the Cybercentre status for KL Sentral, says Lok

MRCB chief operating officer of property Lok Ngai Hey recalls that it was no easy feat as they were the first applicant and the entire process, up to the granting of status, took about one-and-a-half years.

He reveals the major technical requirements of the MSC Malaysia Performance Standards that buildings applying for the status would have to satisfy involve power supply and telecommunications.

“On a non-technical aspect, applicants have to ensure they fulfil other parameters set by MDEC, which include a commitment from the local emergency services that they would respond to a call within a set time.

“The other important parameter is the accessibility to public transportation,” he tells FocusM.

Upon receiving Cybercentre or Cybercity status, these buildings will be subjected to the MSC Malaysia Performance Standards compliance audit carried out by MDEC each year.

MDEC explains that such stringency is necessary to ensure that Cybercentres and Cybercities can attract and provide business environments that cater to the specific needs of MSC companies and ICT investors.

It also points out these premises “are not a property play”, and that it is imperative for them to have the right focus in managing the expectations of Cybercentres and Cybercities as well as MSC and ICT investors.

Lok says MRCB’s decision to apply for KL Sentral to be designated as an MSC Malaysia premise was based on research that found there was a gap in the supply and demand for such spaces in the Klang Valley.

“There were many MSC-status companies and aspiring status companies that were looking for a corporate address in KL but were hindered by the lack of choices back then.”

That decision taken more than a decade ago has paid off handsomely. The MSC designated premises within KL Sentral Cybercentre are more than 90% full, with about 70% of MSC-status companies taking up occupancy.

Lok adds this occupancy rate has remained steady throughout the years, citing KL Sentral’s positioning as a transportation hub as an added advantage.

Ho believes factors like public transportation and amenities contribute to the attractiveness of Cybercentres and Cybercities

Real estate agency Huttons OneWorld Sdn Bhd corporate division manager Ho Chin Kun says that aspects like public transportation and amenities are major factors for buyers and tenants when it comes to Cybercentres and Cybercities.

“With the new MRT [Mass Rapid Transit] line, UOA Damansara has also been receiving more enquiries now compared to before the nearby station was open,” he adds.


Choosing the right product

According to Ho, obtaining Cybercentre or Cybercity status also provides buildings with a larger pool of tenants and greatly increases their demand and occupancy rate, which indirectly translates to an increase in rental or resale value

“However, the impact will be more on a long-term basis and the immediate effect of obtaining the status on the resale or rental value will be smaller in quantum,” he cautions.

As such, Thuang of mscofficemalaysia.com says that one cannot go too wrong by investing in MSC-status offices. “My advice to those who want to invest in offices but are worried about the glut is to choose the right product.

“MSC-designated offices are one of them because we are moving towards the technology age and we can see a lot of government initiatives to promote the ICT industry,” she says.

Additionally, they enjoy a steady demand as MSC companies which want to be eligible for the full set of privileges – termed the Bill of Guarantees (BoGs) – that comes with the status are required to relocate to designated premises within Cybercentres or Cybercities (see sidebar).

While the slowdown in the property market has not affected demand for Cybercentres and Cybercities, the same cannot be said for pricing.

Thuang reveals that many tenants use this as a reason to negotiate for lower rates, though this is mitigated by the fact that these properties generally maintain a certain level of pricing.

In fact, she says that MSC-status offices tend to fetch higher rentals compared to other commercial premises in the vicinity.

“Usually, these designated premises have larger floor plates – a feature that caters to a certain segment of the companies where such rates are not an issue.”

She reveals that the rental rate for non-MSC status offices in KL city centre averages around RM5 to RM5.50 per sq ft (psf). In comparison, offices bearing the MSC status within the same area commands about RM7.50 to RM12.50 psf.

Thuang adds the rent for MSC status offices in Bangsar South is about RM5 to RM6 psf while KL Sentral is commanding about RM5 to RM8 psf.

“Plaza 33 [in Petaling Jaya], which is 100% occupied, has a steady rental rate of about RM5.50 to RM6 psf,” she says.

Huttons Oneworld’s Ho concurs that MSC-designated premises within Cybercentres and Cybercities generally see higher rental demand compared to other commercial office spaces in the same vicinity.

A large segment of this, he says, comes from foreign-owned MSC-status companies occupying up to tens of thousands of sq ft of office space each.

This is in contrast to local ICT companies that generally occupy premises from 1,000 sq ft to a few thousand sq ft.


Competition

Due to the strict set of guidelines, Cybercentres and Cybercities are also attractive to non-MSC companies. “It sends out a message that the building, to a certain extent, is of better quality and infrastructure,” says Ho.

Despite not qualifying for the BoGs, their interest in such properties is further enhanced by their excellent connectivity to public transportation and well-equipped infrastructure.

While they contribute to the demand for these designated premises, there are also concerns that non-MSC businesses are creating competition with MSC companies for supply that is already limited.

At present, there are no restrictions or limits placed on the total space that the former can occupy, nor are MSC businesses given priority when it comes to occupying Cybercentres and Cybercities.

MDEC reasons this is because having a variety of companies is essential in providing the right ecosystem and supporting services to MSC-status businesses operating in these spaces to innovate and co-create.

Thuang says that the entry of non-MSC companies has also had a positive impact on the areas where these Cybercentres and Cybercities are situated.

“Look at Bangsar South. In less than seven years, the area has developed from Kampung Kerinchi into the vibrant environment that it is now, and it is only growing,” she says.


Global technology hub

She admits that theoretically, the absence of restrictions means that a Cybercentre or Cybercity can be fully-occupied by non-MSC companies but is also quick to point out that this is unlikely to happen as they have the option of renting other cheaper premises.

Concerns over competition of another form have also been raised, with worries that the presence of Cybercentres and Cybercities elsewhere will render the global technology hub Cyberjaya redundant.

According to MDEC, Cyberjaya remains a relevant and crucial component in the move towards a digital economy, as do Cybercentres.

It explains that the appeal of both depends very much on the companies’ nature of business, customers’ location or profile as well as their operational, employee and equipment requirements, among others.

For example, Cyberjaya houses many multinational corporations involved in global business services whereas several Cybercentres in the Klang Valley attract large local corporations, small and medium-sized enterprises as well as start-ups in information technology and creative content and technologies.


Benefiting from Bill of Guarantees

COMPANIES which carry the Multimedia Super Corridor (MSC) status are eligible for a set of benefits termed the Bill of Guarantees.

These incentives are aimed at stimulating the local information and communications technology (ICT) industry in the move towards a digital economy.

Bill of Guarantees (BoGs)

1. To provide a world-class physical and information structure;

2. To allow employment of local and foreign knowledge workers;

3. To ensure freedom of ownership by exempting companies with MSC Malaysia status from local ownership requirements;

4. To give the freedom to source capital globally for MSC Malaysia infrastructure, and the rights to borrow funds globally;

5. To provide competitive financial incentives, namely pioneer status (100% tax exemption) for up to 
10 years or an Investment Tax Allowance for up to five years;

6. To become a regional leader in Intellectual Property Protection and Cyberlaws;

7. To ensure no censorship of the internet;

8. To provide globally-competitive telecommunications tariffs;

9. To tender key MSC Malaysia infrastructure contracts to leading companies willing to use MSC Malaysia as their regional hub; and

10. To provide a high-powered implementation agency to act as an effective one-stop super shop.

Businesses that are located in MSC-designated premises within Cybercentres and Cybercities are referred to as Tier 1 companies and can enjoy all 10 BoGs.

Office spaces that are not designated as MSC premises but are located within a Cybercentre or Cybercity are still categorised as MSC-status offices.

Businesses housed in non-MSC designated premises fall under Tier 2 and can still enjoy all the benefits, with the exception of BoG 1 and BoG 8.

Tier 3 companies are those that operate in locations outside Cybercentres and Cybercities. They are still eligible for the BoGs, but can only enjoy part of BoG 2 and 5 and have to forego BoG 1 and 8. 



This article first appeared in Focus Malaysia Issue 244.