KUALA LUMPUR: MRCB-Quill REIT (MQREIT) has secured its first-ever tenant from the co-working sector as the REIT seeks to diversify its portfolio to ride out the challenging environment in the office space. It is looking to secure more tenants within the co-working sector to fill its vacant space.

MQREIT chief executive officer Yong Su-Lin said the REIT had signed a lease agreement with a multinational co-working space provider, which she declined to identify, that would become a tenant of its office space in either Platinum Sentral or Menara Shell in the Kuala Lumpur Sentral area.

Yong said it would be a long tenure of nine years with the option to extend for an additional three years.

“We have agreed with them that there will be a rental revision every three years, all subject to negotiation at the point of time,” Yong told a press conference after MQREIT’s annual general meeting. She declined to disclose the lease amount.

Yong said the new tenant is working on the refurbishment of the office space and is expected to commence operations in June or July.

Yong said the growing number of technology start-up companies in Malaysia had led to rising demand in the co-working space. As such, MQREIT is proactively looking to sign up co-working space providers as tenants in view of the current oversupply of office spaces and downward pressure on rental rates.

“We cannot deny that the co-working space is coming in a big wave into the market. We need to be flexible and dynamic in this changing environment for the office market,” Yong said.

She expects the office market to remain challenging in the next few years due to slower growth of occupiers’ demand compared to the escalating supply of office space.

Taking into account the increasingly challenging operating landscape, Yong said MQREIT will prioritise tenant retention over reversion growth. She said 12% or some 264,000 sq ft of MQREIT’s total net lettable area (NLA) of 2.2 million sq ft will be up for renewal.

The bulk of this will be due by the end of this year, and the REIT has started to negotiate with the tenants and is hoping to get them to sign longer-term leases.

Despite a lacklustre office space market, MQREIT’s portfolio is about 93% occupied. The REIT is hopeful of maintaining the rate this year.

Meanwhile, MQREIT chairman Tan Sri Saw Choo Boon said he expects a minimal impact on the REIT in the event of an interest rate cut by Bank Negara Malaysia.

“We are in the property business and we are not speculating on interest rates to make money. Our concentration is on making money from renting office space,” he added.

MQREIT’s gearing ratio stands at 37.7% with 76% of its total borrowings being charged a fixed interest rate, and 24% floating rates. It is estimated that the REIT had total debts of RM853.7 million as of Dec 31, 2018.

The REIT expects its capital expenditure in 2019 to be about RM10 million, mainly for asset enhancement.

MQREIT’s share price rose one sen or 0.9% to RM1.12 yesterday, giving the REIT a market capitalisation of RM1.2 billion. It has risen by 10.89% over the past year.