Kuala Lumpur office vacancy rates slow as market adjusts

Flexibility and green initiatives drive tenant attraction and retention.

The Kuala Lumpur office market has seen declining vacancy rates over the past year, adapting through flexibility and sustainability to meet the evolving needs of tenants. 

Wong Xian Yang, Head of Research for Singapore and SEA at Cushman & Wakefield, said that the shift towards hybrid working has not only persisted but also catalysed the expansion of co-working spaces, responding to demand from international occupiers seeking flexible, innovative office solutions. 

According to Wong, "Landlords have been quick to adapt, offering flexible lease terms and attractive rental incentives," he noted, emphasising strategies to engage tenants, especially as multinational companies increasingly embrace hybrid work models.

"The trend towards hybrid work in Asia, though slower than other markets, has nonetheless contributed to a more dynamic office landscape," Yang observed. In Malaysia, for example, multinational corporations typically require employees to be in the office at least three days a week, with local companies returning almost full-time.

He said that an important factor in the office market's evolution is the growing preference for green, high-quality office spaces. Tenants prioritise environmentally friendly, green-certified buildings that offer state-of-the-art amenities and connectivity. 

"There's a clear flight to quality, with new buildings featuring advanced amenities seeing strong uptake," Yang pointed out, highlighting the market's appetite for sustainable and well-connected office environments.

Rising operating expenses, fueled by increased utility and labour costs, have impacted rental dynamics, with average asking rents experiencing fluctuations. "The balance between cost and demand factors is reshaping expectations and asking rents," he explained, indicating a nuanced response to the pressures of higher operational costs.

Looking ahead, Yang is optimistic about the office market's prospects. With resilient demand and positive net absorption anticipated in the coming quarter, the vacancy rate is expected to stabilise. 

Furthermore, Malaysia's economic growth, projected to accelerate, bodes well for the office demand in
Kuala Lumpur, promising continued support for the market.

"The office market's adaptability to changing work habits, coupled with a commitment to quality and sustainability, positions Kuala Lumpur as a robust player in the region," Wong concluded.