As government strategic development agency 1MDB stepped up its investment pitch for the new Tun Razak Exchange (TRX) financial district to investors last week, CIMB group chief executive Nazir Razak suggested that the government reconsider the mammoth supply of commercial space in Kuala Lumpur to prevent an oversupply.
1MDB's unit, 1MDB Real Estate Sdn Bhd, as master developer, had formally invited qualified international and domestic investors to submit proposals for Phase 1 of the 70-acre TRX and to be part of its strategic development following "strong expressions of interest from a host of local and global players".
There has been "overwhelming" expressions of interest for about half of Phase 1 which will comprise up to 10 acres, a source told BT.
He said local investors are mulling over a number of the one to 1.5 acre plots for corporate headquarters or investment. However, it remains to be seen if interest is sustained when the actual bidding takes place.
Still, TRX, the first phase of which is scheduled to be completed in 2017-2018, has its attractions: Putrajaya has rolled out the red carpet, offering a number of incentives including a five-year tax break and plans for a dedicated MRT station at the site.
Other developers, especially those in the vicinity, have complained at being put at a disadvantage, particularly in a softening market. According to reports, some 26 million square feet of space is scheduled to come on-stream in the Klang Valley over the next five years despite current occupancy hovering at an average 80 per cent.
To fears of a potentially serious oversupply, Mr Nazir added his concerns over the weekend.
The younger brother of Prime Minister Najib Razak urged the government not to embark on its projects simultaneously given their enormous size, and questioned Putrajaya's deep involvement in property development.
In an interview with The Edge, he pointed out that KL Sentral - about eight km from the city centre and increasingly popular with corporations because it is a public transport hub - alone would supply some 10 million sq ft of space.
Indeed, CIMB's new building in Sentral offers 600,000 sq ft.
Add the contributions of TRX, the Warisan Merdeka development and its 100-storey skyscraper, plus the integrated development in Sungei Buloh on the outskirts of the city, among others, and an office space bubble cannot be discounted.
"I cannot imagine where all the occupancy is going to come from," Mr Nazir said, adding that tenants could be persuaded to move to new buildings if rentals were attractive, but previously occupied towers would be left vacant.
In the case of TRX, the whole development would stretch over 15-20 years and its commercial space would be manageable if not for the other projects.
In addition to the five residential blocks in TRX, Phase 1 will see two hotels and a retail mall as well as four office towers including a "signature tower" - the last possibly to be developed in a partnership between China Exim Bank and 1MDB under a joint agreement to explore mutual investment opportunities.
1MDB RE plans to hold equity interests through joint ventures for the bulk of TRX - named after the country's second prime minister, Tun Abdul Razak, the father of Messrs Najib and Nazir - and will only consider land sales on a case-by-case basis, subject to the master plan. - Business Times Sg
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