Malaysian office sector undergoes ‘recalibration’

Vacancies in older buildings are rising as tenants move to premium Grade A spaces.

The Asia-Pacific office market faced notable headwinds in 2024, with prime office rents declining by 1.6% for the year, a slight improvement from the 2.4% drop recorded in 2023.

However, resilience was evident in select markets, with 16 out of 23 monitored cities reporting stable or increasing rents, particularly in Australia and Japan, according to the Knight Frank Asia-Pacific Q4 2024 Office Highlights.

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In Malaysia, the office market, especially in Kuala Lumpur, remained competitive, yet key Grade A buildings in prime locations continued to attract strong occupier demand. The flight-to-quality trend drove corporate tenants toward office spaces with superior amenities and sustainability features, helping to stabilise occupancy levels despite an overall subdued rental environment.

Malaysia’s office sector continues to undergo a period of recalibration. The supply of premium Grade A office stocks, particularly in Kuala Lumpur, has attracted many multinational companies. Whilst vacancies in older office stock are rising, landlords are adapting to evolving workplace demands by upgrading building specifications, enhancing sustainability features, and offering attractive lease packages to retain and attract tenants.

"While we continue to see challenges in the broader Asia-Pacific region, Kuala Lumpur’s office market remains dynamic despite recording a vast vacancy rate compared to other countries in the Asia Pacific region. This presents a good opportunity for tenants to upgrade or reconfigure their office spaces to align with the latest trend for employment growth sustainability and talent retention. Overall occupancy rate and rental rates have shown slight uptick due to positive take up in KL City Centre especially Tun Razak Exchange (TRX)," said Teh Young Khean, Senior Executive Director of Office Strategy & Solutions, Knight Frank Malaysia.

Despite some downward pressure on rents, prime Grade A office buildings in key locations such as Mid Valley City, KL Eco City, KL Sentral and Bangsar South within the KL Fringe and Tun Razak Exchange in the KL city centre continue to attract interest from both new occupiers and those looking to consolidate operations. The market’s performance is also supported by Malaysia’s stable economic outlook, which continues to drive business expansion and employment growth.