Why supply delays persist in Kuala Lumpur’s office property sector

A project was delayed due to challenges in obtaining necessary permits.

Despite no new completions observed in the market during Q1, JLL said Merdeka 118 stood out as a major project that was completed towards the end of the previous quarter with an impressive net lettable area of approximately 1,679,000 sq ft in the market.

“Delays were encountered in the PNB Project 1194 and CT 1 @ Pavilion Damansara Heights. These delays were attributed to challenges in obtaining the necessary Certificate of Completion and Compliance. As a result, the overall progress of the projects was affected, potentially causing a disruption in leasing activities,” the analyst said.

Here’s more from JLL:

The robust demand for green-certified buildings in the Kuala Lumpur City (KLC) and Kuala Lumpur Fringe (KLF) areas have not only propelled market growth but also led to positive net absorption, whereas the absence of green-certified spaces in the Decentralised (DC) area resulted in negative net absorption.

KLC has been observed to be actively involved in demand and movements within the market. Many companies were noted to be upgrading their office space, indicating a strong demand for green space and modern work environments. The KLC submarket is potentially the one benefitting the most from this market activity.

KLC and KLF observe rent growth amidst market dynamics

The rent increase in the KLC submarket, particularly in the Golden Triangle and CBD precincts, was higher compared to the KLF submarket. This suggested that demand for high-quality and sustainable office space was more concentrated in the city centre, where companies prioritise proximity and accessibility to business amenities.

In contrast, the rents in the DC submarket decreased, indicating that older buildings in these areas struggle to attract tenants, likely due to factors such as outdated facilities and less desirable locations. Furthermore, a significant number of office buildings in DC lack green certification.

Outlook: Demand shift towards quality and sustainability

The demand for green-certified buildings is expected to continue driving rent increases in the KLC and KLF areas as tenants prioritise sustainability and environmentally-friendly features in their office spaces.

Older buildings without green certification may face challenges in attracting tenants, highlighting the need for landlords to consider retrofitting options in order to enhance sustainability features and remain competitive in the market.

Note: Kuala Lumpur Office refers to Kuala Lumpur's Grade A office market.