Build more Grade A office towers in Johor Baru to attract investors, buyers

Johor Baru should have more Grade A office buildings to attract foreign investors and the spillover will be a housing boom.

According to Datamine Malaysia Sdn Bhd head of research Jerren Lai, Grade A office space is non-existence in Johor Baru, especially in the Iskandar Malaysia economic zone.

Lai said the focus of developers has always been to build houses while the government plans catalyst projects to stimulate the economy

However, next year will see the entry of two Grade A office towers, both developed by IGB Corp Bhd.

IGB is undertaking a project called Southkey, that is similar to the developer’s Mid Valley City in Kuala Lumpur.

Southkey is an integrated project with a gross development value of RM6 billion.

It comprises four towers with one million sq ft of office space, a mall, serviced apartments, and three hotels.

So far IGB has completed the mall where the anchor tenant is Sogo, and also the serviced apartments.

According to Lai, the two office towers by IGB will be ready in March 2021.

Coming up next is a corporate tower in Coronation Square, an RM3 billion development by Coronade Properties Sdn Bhd.

Coronation Square, launched in 2015 by Sultan of Johor Sultan Ibrahim Sultan Iskandar at the Persada Johor International Convention Centre is the first project under the Ibrahim International Business District (IIBD) transformation plan.

IIBD, which covers 101.17ha within Johor Baru city centre is jointly developed by Johor Corporation and the state government, aimed at turning Johor Baru into a “metropolis of international standard”.

It was reported that the cost of the entire transformation plan for the IIBC will be between RM20 billion and RM25 billion.

Coronation Square will comprise a mall, a hotel, a hotel cum residences, an office tower, high-rise medical suites, and two serviced apartment blocks.

Lai told NST Property that the office tower in Coronation Square is expected to take another year to complete.

“We hope that the two office towers by IGB and the block in Coronation Square will encourage more developers to build office space in Johor Baru. There’s a lot of demand for office space among foreign firms, especially Singapore-based multinational companies (MNCs) and bluechip firms who require Grade A offices to relocate their back end operations.

“With the current Covid-19 pandemic, a lot of firms are looking to cut cost and they find it cheaper to operate in Johor Baru but there is no good quality office spaces for them to make the move,” Lai said.

Lai said Iskandar Malaysia is the ideal place for them as Grade-A office rentals are 70 per cent lower than Singapore while human resource cost is a fraction of theirs.

Grade-A office buildings in the Singapore Marina Bay area is SGD12.26 (RM36) per square foot (psf).

Raffles Place area averages SGD9.48 psf (RM31psf), Dhoby Ghaut at SGD9.14 psf (RM30 psf), Shenton Way at SGD8.00 psf (RM27 psf), Tanjung Pagar at SGD6.58 psf (RM20 psf), Novena at SGD5.32 psf (RM16 psf) and City Hall at SGD6.13 (RM18 psf).

“In contrast, the office towers by IGB is estimated at RM7.00 to RM9.00 psf, which is below SGD3.00 psf. Singapore’s cheapest Grade-A offices are in the Alexandra area priced at SGD4.35 or RM13.00 psf. It is 30 percent higher than Iskandar Malaysia’s top-grade office offering,” said Lai.

Lai said Singapore’s MNC human resource cost is also roughly dollar-for-dollar that of Malaysia.

“A mid-level executive earns SGD5,000 to SGD7,000 while a similar position in Malaysia is in that range priced in ringgit. SGD5,000 translates to about RM15,100 and they can easily afford to buy a property in the Iskandar region that is priced above RM1 million,” he said.

Lai said that currently, about 80 per cent of Singaporeans leave in HDB flats, which are leasehold properties and priced around SGD300,000 each.

According to him, the first batch of HDB flats are already reaching 60 years of age and the values are dropping rapidly.

“There is very strong demand currently for freehold properties but the majority of them who live in HDB flats, they cannot afford a freehold property in Singapore. HDB flats are usually owned by the middle to lower-income groups. They are tiny apartments with a lease problem. These groups cannot afford freehold properties in Singapore because they are far more expensive, and cost more than RM4,000 psf.

“Iskandar Malaysia offers them an alternative to escape this lease decay problem. They can think about selling their HDB flat which is still below 60 years and relocate to Iskandar Malaysia, where the properties are much cheaper than their HDB flats,” Lai said.

Based on the latest URA statistics and the Iskandar Property Census 2020 Q3 research pioneered by Lai, Woodlands leasehold private properties is 320 per cent higher than Johor Baru CIQ freehold properties.

“There are one million HDB flats in Singapore and if 10 per cent were to relocate to Iskandar Malaysia, that would have already absorbed a sizeable amount of the current supply in the region,” he said.

Lai said with efforts underway to improve connectivity between Singapore and Iskandar Malaysia in the form of the Johor Baru-Singapore rapid transit system, and in the future, the proposed Kuala Lumpur-Singapore high-speed rail link, he foresees more Singaporeans making Johor Baru their new home.

“Iskandar Malaysia has all the markings to be an economic powerhouse much like Shenzhen to China and it can exceed the Klang Valley in terms of growth rate in this decade. Medini, which is located in the Iskandar region is a designated Special Economic Zone mirrored after Shenzhen’s success and its full potential can be realised if matched with special long-term passes to foreign investors,” he said.

Source: NST