Malaysia’s real estate market is experiencing a wave of positive sentiment across all segments, according to the latest analysis by leading real estate consultancy JLL. The flight to quality is notably driving demand in commercial and industrial sectors, with high-quality green-certified properties witnessing increasing rents and strong net absorption levels.
In the retail sector, the city center submarket is thriving due to robust domestic consumer demand and a steady influx of tourists. Shopping malls in this area are reporting high footfall, increased occupancy, and Net Operating Income (NOI). However, competition remains fierce in the suburban submarket, compelling landlords to be more flexible on rental terms to achieve better occupancy, particularly for older malls.
The market segmentation between modern and older stock is becoming more pronounced, especially in the office segment. Rents and occupancy for new green space stock are on the rise, while older buildings are facing lower demand and reducing rents to attract tenants.
The residential market saw historic highs in 2023, indicating Malaysians’ preference for ownership and confidence in their financial position. Kuala Lumpur alone recorded 13,700 residential transactions in 2023, comparable to the booming market of 2014-2015.
Investment activity is also on the rise, primarily driven by local investors returning to the real estate market after uncertainties during the pandemic. With positive macroeconomic drivers, the market is expected to continue its upward trajectory in the medium term.
Looking specifically at the office market, while no new completions were observed this quarter, several noteworthy properties are expected to be completed in 2024. These developments, situated in well-established office clusters, are anticipated to have confirmed green features, reflecting the growing emphasis on sustainability.
In terms of occupier location preferences, the Kuala Lumpur City (KLC) submarket is favored by the financial and oil and gas sectors, while the KL Fringe (KLF) submarket is popular among business services and consumer goods manufacturing industries. The DC submarket attracts cost-conscious tenants, particularly in the technology and business services segments.
Despite no new completions, the overall vacancy rate in the office market continued its downward trend in 1Q24, indicating strong demand outpacing supply. Rental rates saw the highest increase in the KLC submarket, driven by demand for high-quality and sustainable office spaces.
Turning to the retail market, while no new completions were recorded in 1Q24, strong footfall was observed in major shopping malls, driven by local demand and continuous growth in tourism. Retail sales for 2024 are expected to grow, supported by strong domestic demand and the anticipated increase in tourist arrivals.
In the residential segment, the market demonstrated strong sales performance in 2023, particularly in prime and luxury properties. Transit-oriented developments near transportation stations continue to attract homebuyers and investors, presenting attractive opportunities for rental yields.
On the investment front, land transactions for industrial and logistics purposes remain dominant, with growing interest in the data center segment. Notable transactions include Sunway REIT’s acquisition of 163 Retail Park and KLCC Property Holdings’ acquisition of Suria KLCC Sdn Bhd.
Overall, while cautiously optimistic, the real estate market in Malaysia is poised for continued growth, fueled by positive market sentiment and strong fundamentals across all segments.
Positive Outlook for Kuala Lumpur Office Market in 2024
Anticipation is building for an influx of new properties set to shape the market landscape in the coming years in Kuala Lumpur’s office real estate. According to recent analysis by JLL, the market is gearing up for the completion of several notable developments, promising to inject fresh energy into the city’s commercial sector.
JLL is a professional services firm specialising in real estate and investment management, committed to shaping the future of real estate for a better world. Utilising advanced technology, JLL creates rewarding opportunities, amazing spaces, and sustainable real estate solutions for clients, employees, and communities.
During the quarter, no new completions were observed, but looking ahead to 2024, the stage is set for the arrival of significant players such as the Lendlease office @TRX, PNB Project 1194, Phase 1 of TNB Platinum Tower, and CT 1 @ Pavilion Damansara Heights.
These projects, situated in well-established office clusters within KL City and KL Fringe submarkets, are expected to add approximately 1.05 million square feet of office space this year alone, with a similar volume anticipated for 2025. Furthermore, developers are eyeing a significant surge in supply by 2026, with projections of up to 2.5 million square feet.
Occupiers Location Preferences
Analysing the location preferences of 100 largest occupiers across three submarkets, representing various industries, JLL took a closer look at occupier preferences reveals intriguing insights into the city’s evolving commercial landscape.
The KLC submarket emerges as the favored destination for financial institutions and oil and gas companies, drawn by its prestigious location, proximity to business partners, and excellent accessibility.
Meanwhile, the KL Fringe submarket attracts companies in business services and consumer goods manufacturing, offering modern office stock at competitive rates within transit-oriented mixed-use developments. Conversely, the DC submarket caters to cost-conscious tenants, particularly those in the technology and business services sectors, seeking efficient spaces close to transportation hubs.
The driving force behind the market’s momentum lies in the flight to quality, with companies increasingly gravitating towards newer, green-certified spaces that align with corporate sustainability goals.
Vacancy Rate
This trend has led to notable changes in tenant occupancy patterns, particularly in the KLC and KL Fringe submarkets. The overall vacancy rate in 1Q24 decreased to 21.1%. In the specific submarkets, KL City (KLC) experienced a quite noticeable improvement with the vacancy rate dropping from 30.2% in 4Q23 to 28.7% in 1Q24. Similarly, in the KL Fringe (KLF) submarket, there was a slight improvement in the vacancy rate, decreasing from 7.9% in 4Q23 to 7.7% in 1Q24.
However, the Decentralised (DC) submarket saw an increase in the vacancy rate from 18.9% in 4Q23 to 19.5% in 1Q24. This submarket has witnessed a clear flight to quality and a growing emphasis on sustainability. Tenants are seeking high-quality, sustainable office spaces located near transportation hubs, which are limited in the DC submarket.
Despite the absence of new completions this quarter, demand remains robust, outpacing supply and driving a downward trend in vacancy rates. Notably, the KLC and KL Fringe submarkets experienced improvements in vacancy rates, reflecting growing interest from tenants in high-quality, sustainable office spaces.
Additionally, the market is witnessing increasing demand for flexible workspace solutions, reflecting the evolving needs of tenants for spaces that foster creativity, collaboration, and well-being.
Kuala Lumpur Office Rental Rates Reflect Sustainability Trends
Rental rates have shown a modest increase, particularly in the KLC and KL Fringe submarkets, fueled by demand for green-certified spaces. However, the DC submarket has experienced a decrease in rental rates due to limited green space options and declining tenant interest.
In the dynamic landscape of Kuala Lumpur’s office real estate, sustainability is emerging as a key driver influencing rental rates and market sentiment. According to the latest market data, the demand for high-quality, sustainable office spaces has propelled rental rates upward in the Kuala Lumpur City (KLC) and Kuala Lumpur Fringe (KLF) submarkets.
The current quarter witnessed the highest increase in rental rates in the KLC submarket, closely followed by the KLF submarket. Tenants are increasingly willing to pay a premium for green-certified spaces, particularly in modern buildings that align with sustainability trends.
However, despite this notable surge in select submarkets, the overall market has seen a more moderate increase in rental rates, with a modest overall rise of 24 basis points compared to the previous quarter.
Conversely, the DC submarket faces challenges due to a lack of green space options. This scarcity has compelled tenants to seek alternatives, resulting in a further decrease in rental rates in the DC submarket during the first quarter of 2024.
The positive outlook for net absorption remains strong in the KLC and KLF submarkets, driven by increasing tenant interest and the introduction of new high-quality, green-certified buildings. These developments, with their favorable transportation options and alignment with corporate Environmental, Social, and Governance (ESG) policies, are in high demand among tenants.
On the other hand, the DC submarket is expected to experience negative net absorption. Landlords’ reluctance to prioritise building refurbishments or obtain green certifications has led to a decrease in tenant interest. Additionally, the relatively distant location of many office clusters in the DC submarket from major transportation hubs limits accessibility to public transportation, making it less attractive to tenants.
As sustainability continues to shape the real estate landscape, stakeholders in Kuala Lumpur’s office market are navigating the evolving demands of tenants while striving to align with environmental and corporate responsibility goals. With sustainability firmly on the agenda, the market looks poised for further transformation in the coming quarters.
Retail Market Shows Resilience Amidst Changing Dynamics
The retail landscape in Kuala Lumpur experienced notable shifts and adaptations during the first quarter of 2024, reflecting both continuity and change in consumer behavior and market dynamics.
The retail sector saw no new project completions during the quarter, maintaining a stable prime retail stock at 11.56 million sq ft in the City Centre submarket and 36.09 million sq ft in the Suburban submarket.
Near-term supply projections indicate a concentration in the Suburban submarket, while the City Centre submarket expects limited additions, with only one completion anticipated by year-end.
Robust footfall marked major shopping malls during the quarter, fueled by strong local demand and a continued uptick in tourism, notably supported by the Chinese New Year holidays.
Anticipated growth in retail sales for 2024, driven by domestic demand and the resurgence of tourist arrivals, paints a positive outlook for various retail sub-sectors.
The retail landscape witnessed a trend of new store openings, particularly in fashion, restaurants, and grocery and beverage segments, while categories like cinemas and department stores faced downsizing.
In the KLC Centre submarket, rental rates saw an upward trajectory, buoyed by robust footfall from local residents and growing tourist arrivals. However, in the Suburban submarket, mixed dynamics were observed, with malls employing strategic tenant mix and flexible tenant relations faring better than others.
Looking ahead, while the City Centre submarket is expected to continue demonstrating stronger performance, rental rates may not fully recover to pre-pandemic levels. Landlords are adopting a combination of fixed rent and turnover-based rent models to share market risks with tenants.
As the retail market adapts to changing consumer preferences and economic conditions, stakeholders remain vigilant, leveraging strategic approaches to navigate challenges and capitalize on emerging opportunities, fostering resilience in the face of evolving dynamics.
Malaysian Residential Market Shows Resilience and Growth
The Malaysian residential real estate sector has exhibited robust performance and promising prospects, marked by strong sales figures and improving market conditions, according to recent data.
In 2023, the Malaysian residential market witnessed a commendable 3% increase in the number of transactions, with Kuala Lumpur recording a slightly higher growth rate of 4%. The prime residential segment particularly saw significant improvement, with a notable surge in new property launches across various segments, including prime and luxury properties.
This surge has led to a gradual decrease in the overhang property ratio in the prime segment, surpassing volumes achieved during the market boom a decade ago.
Transit-oriented developments near transportation hubs continue to attract both homebuyers and investors, especially younger buyers who prioritise integrated developments with superior connectivity and comprehensive amenities. The growing preference for renting among locals presents attractive opportunities for investors to capitalize on growing rental yields in the prime segment.
In prime submarkets such as Mid Valley City, Damansara Heights, Ampang Hilir, and KLCC, rental rates have shown improvement in the first quarter of 2024, supported by an increasing number of incoming tourists. Looking ahead, rental rates in prime areas are expected to continue their upward trajectory, albeit tempered by new supply introductions to maintain a stable equilibrium between inventory and demand. While capital values remained unchanged in 2023-1Q 2024, a slight appreciation in selling prices in the prime segment is anticipated due to growing demand, decreased overhang, and increased construction costs.
Anticipated relaxation of requirements for the MM2H (Malaysia My Second Home) program and an expected increase in foreign buyers could further stimulate demand for prime properties in Malaysia, potentially driving prices up.
Investment Activity in Malaysian Real Estate Gains Momentum
Investment activity in Malaysia’s real estate sector is gradually rebounding following the pandemic-induced slowdown, with investors adopting a cautiously optimistic approach, according to recent data.
After a period of subdued activity during the COVID-19 pandemic, investment interest in Malaysian real estate has been steadily increasing. Land transactions, especially for industrial and logistics purposes, remain the dominant form of investment, accounting for 57% of overall volume in 2023.
The data centre segment is also experiencing growth, with investors primarily focusing on land acquisitions for future development due to lower costs compared to completed buildings.
In 2023, logistics and industrial assets constituted nearly a quarter of the total transaction value, followed by offices at 8%. Notably, traditional market segments like offices and retail saw limited transactions, mainly involving Grade B assets. However, in the retail market, two significant investment transactions occurred in the first quarter of 2024, including Sunway REIT’s acquisition of 163 Retail Park and KLCC Property Holdings Bhd’s acquisition of the remaining equity interest in Suria KLCC Sdn Bhd.
While the office market noted relatively quiet movement activity, local investors have shown interest in purchasing office buildings for owner-occupier purposes. For instance, PKNS plans to lease the corporate office Plaza Perangsang in Shah Alam to its subsidiaries and other companies. Additionally, Alliance Bank’s relocation of its corporate office to Oxley Tower in KLCC’s commercial center signifies a preference for owning office spaces rather than leasing.
The logistics and industrial sector remains resilient, witnessing increased activity amidst a continued focus on the China plus one strategy. Looking ahead, an optimistic outlook prevails, with both international and domestic investors showing keen interest across all sectors.
The recent government advisory to major government-linked companies (GLCs) to allocate a higher share of their investments domestically is expected to stimulate demand in the local market, particularly for logistics and industrial properties, data centers, hospitals, and educational assets.
Conclusion: While local investors exhibit a preference for stable long-term revenue assets, the interest from large multinational investors and sovereign funds signals positive opportunities in Malaysia’s real estate sector, highlighting the sector’s attractiveness for diverse investor profiles.
