/// Hot Topic
Office to Hotel Conversion on the Rise
in Malaysia
tenants and their
yield is far lower
than what it should
be,” she says.
Malaysia’s current
vacancy rate is
nearly double that
of Britain, which
translates into a
larger need for
office to hotel
conversion, she
adds. Furthermore,
tourist arrivals have
been increasing,
hitting the 25 million
mark in 2012.
Vacant office
buildings in cities
with popular holiday
destinations nearby
are perfect for
conversion into
hotels. In fact, this
trend may have
already started.
A shop office converted hotel in KK Times Square
Converting office buildings into
hotels is an easy way to maximise
asset value in certain markets and
has resulted in a big change in
the way property developers are
creating new hotel supply to cater
to the country’s growing tourism
industry.
A recent Zerin Properties report,
“Office to Hotel Conversion”,
highlights this growing trend and
examines whether vacant office
buildings in Kuala Lumpur can be
converted into hotels to increase
their net profit and yield.
A National Property Information
Centre commercial property stock
report states that the supply of
purpose-built offices in Kuala
Lumpur was at 81.6 million sq ft
while incoming supply was at 13.6
million sq ft as at 3Q2013. Selangor’s
supply of purpose-built offices stood
at 32.4 million sq ft while incoming
supply was at 4.2 million sq ft. The
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occupancy rate for Kuala Lumpur
offices was 78.8%, compared with
Selangor’s 73.9%.
As a comparison, 12% of offices in
the UK have stood empty for many
years, according to the report by
Zerin Properties. In some areas such
as Birmingham, 18% of commercial
properties are said to be empty. The
UK government believes thousands
of sites can be converted into
homes [rather than hotels], while
still meeting the demand for offices
when the economy picks up.
According to Roja Rani, Zerin
Properties’ head of research
and consultancy, the need to fill
commercial space in Malaysia
is greater because there is an
oversupply.
“However, this could just be that
there is an oversupply of old
buildings and these are being
converted simply because they lack
The report cites Tan
Sri Tony Fernandes,
group CEO and director of AirAsia
Bhd and founder of Tune Group
Sdn Bhd, who was quoted as telling
Endemic Guides that many property
owners wanted to convert their
office buildings into hotels to get
higher yields.
Fernandes himself has converted
office buildings in prime areas of
London, including Kings Cross and
Paddington, into hotels.
A few Malaysian entrepreneurs have
taken a leaf from Fernandes’ book
and done the same back home. Mak
Hoong Weng, director of Art Form
Enterprise Sdn Bhd, owns buildings
in Kuala Lumpur, Melaka and
Kuantan that he has amassed over
a 10-year span. He plans to convert
10 of them into hotels, offering over
1,000 rooms.
One of Mak’s boutique hotels, Star
Luxury Hotel in Jalan Raja Chulan,
/// HOT TOPIC
Kuala Lumpur, was converted from
two office towers and currently
charges between RM280 and
RM1,500 per night. He also owns
a multi-storey heritage building in
Jalan Tun Perak, where the ground
floor has been leased out to a food
and beverage operator and the rest
of the building rented to a budget
hotel operator.
The 13-storey Wisma Peladang in
Jalan Bukit Bintang also underwent a
complete retrofit in 2006, becoming
Piccolo Hotel. It immediately
drew investment from Berjaya
Land, which now owns 51% of the
four-star hotel, which charges an
average room rate of RM246. As at
September 2013, Piccolo had an
occupancy rate of 80%.
Roja said “This could just be that
there is an oversupply of old
buildings and these are being
converted simply because they lack
tenants and their yield is far lower
than what it should be”
Meanwhile, corporate office tower
Plaza Atrium in Lorong P Ramlee is
being converted into 109 serviced
apartments spread over 34 floors by
Pinehigh Development Sdn Bhd, a
wholly-owned subsidiary of Far East
Organization.
According to Roja, more developers
in Kuala Lumpur are starting to
jump on the bandwagon. “Recently,
it was announced that an old office
building, Menara CMY in Jalan
Ampang, would be redeveloped into
a hotel.”
Foo Gee Jen, managing director of
WTW, also cites some conversions
in Kuala Lumpur, namely Wisma
KLH into Wolo Hotel, Magnum Plaza
into Sky Express Hotel (previously
Flamingo Hotel) and Sentosa
Hospital into Tunes Hotel.
However, he does not believe this
is a growing trend. “It all depends
on the location being suitable for
a hotel, the cost of refurbishment