Malaysia’s Prime Office Market Faces Headwinds, But Bright Spots Emerge

Press Release: Malaysia’s Prime Office Market Faces Headwinds, But Bright Spots Emerge

Region poised for significant changes in 2025, with a 7% increase in prime Grade A office space expected

KUALA LUMPUR, 11 FEBRUARY 2025 – 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.

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 Market Outlook

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 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 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 has 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.

A Region Poised for Change

Asia-Pacific’s office market is expected to undergo significant transformations in 2025, with prime Grade A office space increasing by 7%, up from 4% in 2024. More than 40% of this new supply will be delivered to mainland Chinese markets, which remain under pressure due to economic headwinds.

“Although the region’s rent is expected to decline in 2025, much of the weakness is largely concentrated in Chinese mainland markets. The rest of Asia-Pacific is still expected to see moderate increases of 1 to 2%, with leasing volumes anchored by markets in India. Leasing activity will also remain healthy in Tokyo, as strong demand for new office developments will gradually tighten availabilities in the city. As inflation concerns subside in the region, geopolitics will be the key variable to watch in 2025. This shift in focus is likely to influence occupier behaviour, with many adopting a defensive stance and showing a strong preference for renewing leases rather than relocating. The region’s softening rents and ample new supply will be conducive to those looking to upgrade their office spaces.” said Christine Li, Head of Research, Asia-Pacific, Knight Frank.

Sustainability and Workplace Trends Shape Future Office Demand

The evolution of workplace strategies continues to shape demand dynamics across Malaysia and the region. Companies are increasingly prioritising sustainability, wellness features, and hybrid-working adaptability when selecting office spaces.

Keith Ooi, Group Managing Director of Knight Frank Malaysia, said, “The Malaysian office market is undergoing a transformation, with workplace quality and sustainability emerging as top considerations for occupiers. While landlords face increasing competition, those that proactively invest in improving their buildings and offering greater flexibility in lease structures will remain competitive. Looking ahead, we anticipate demand for high-quality office space to persist, particularly from businesses prioritizing ESG (Environmental, Social, and Governance) objectives and employee well-being.”

In line with these trends, occupiers are placing greater emphasis on accessibility, connectivity, and the overall employee experience. Tim Armstrong, Global Head of Occupier Strategy & Solutions, Knight Frank, highlighted, “Despite challenges in Chinese mainland markets, office space demand across Asia-Pacific is expected to remain resilient. The region is well positioned for growth, with strong office utilisation driven by sustained employment growth and stabilising workplace arrangements.

The ample development pipeline continues to provide occupiers with opportunities to transform their workspaces, focusing on fostering employee productivity and engagement. While sustainability and access to talent remain primary drivers of occupier decisions, proximity to amenities and connectivity are rapidly becoming key differentiators, particularly for companies aiming to increase office attendance. While well-located prime offices lead the market, occupiers must adapt to varied economic trajectories and supply conditions when developing their space strategies.”

Malaysia’s Office Market in 2025: A Year of Opportunity Amidst Change

Looking ahead, Malaysia’s office market will continue to evolve in response to changing occupier needs and broader economic trends. While challenges such as supply overhang and competition from newer developments persist, opportunities exist for landlords willing to differentiate their offerings.

As businesses focus on optimising office spaces to support hybrid work models and enhance employee experience, Kuala Lumpur’s prime office segment is expected to remain a focal point for both domestic and international occupiers. With the right strategies, Malaysia’s office market is well positioned to navigate headwinds and unlock new growth opportunities in 2025.

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