News & Articles Office sector to remain tenant-driven
Office sector to remain tenant-driven
20 Jan 2025
PETALING JAYA: The local office sector is anticipated to remain tenant-driven in 2025, as high vacancy rates are expected to persist.
An analyst said the supply of office space, especially within the Klang Valley, continues to remain high.
“We expect the office sector to continue remaining challenging and to be a tenant market over the medium term,” he said.
Savills Malaysia Sdn Bhd group managing director Datuk Paul Khong said office demand will continue on with rightsizing and relocation activities.
“Key drivers include the ‘flight-to-quality’ trend, where tenants still prefer Grade A buildings featuring modern amenities, energy efficiency and public transit access.
“Environmental, social and governance (ESG) and sustainability initiatives are getting prominent.”
Additionally, Khong believes that flexible and co-working spaces will continue to grow, supported by hybrid work models and employee’s well-being priorities.
Savills Malaysia Worldwide Occupier Services head Zawani Abidin said the occupancy rate of high-grade office buildings in the Kuala Lumpur (KL) city area has rebounded, with some reaching or exceeding pre-pandemic occupancy levels, supported by their ability to meet tenants’ needs.
She noted that optimisation plans, led by hybrid working models, have impacted the office footprints.
“The ‘return to office’ is a real wave but it is directed towards the right office – in both size and specifications. More companies expect their offices to be smart and user-focused.
“There is no reprieve for ageing buildings that cannot be upgraded, particularly in locations that are losing out to the brighter gems within the city.”
CBRE | WTW advisory and transaction managing director Lim Chai Yin said demand remains steady for new, high-quality green buildings in prime locations, driven largely by relocations from older buildings, which are increasingly left vacant.
“Landlords of older buildings face challenges in retaining tenants, underscoring the need for upgrades or repurposing. Staff retention, operational costs and access to amenities are critical factors influencing leasing decisions.
“Rents for selected new buildings are rising, driven by higher occupancy rates and increasing maintenance costs. However, the rate of increase varies across the market,” she said.
According to Hong Leong Investment Bank (HLIB) Research, the office market will continue to serve up vacancy challenges with limited rental growth.
“The office sector continues to grapple with oversupply issues, with vacancy rate staying elevated at circa 33% as of the third quarter of 2024 (3Q24).
“Also, demand recovery remains sluggish and it struggles to absorb new supply in the Klang Valley, leaving office owners with minimal rental upside and negative rental reversion risk in 2025.”
From its channel checks, HLIB Research said rental reversion is expected to stay flattish, underscoring the subdued outlook.
“However, according to Savills Malaysia, office supply growth in Greater KL is projected to slow down to 0.5% to 1% in 2025 (2024: 2% to 3%) and this may offer some respite going forward.”
Separately, Kenanga Research said occupancy rates in 3Q24 stayed at 71.6% of a total private office space of 18.8 million sq m.
“Besides seeing growing demand for office spaces from high-growth sectors such as technology and finance, we believe offices at the fringe of KL and Selangor that are highly integrated are in a better position as compared with the KL city, as affordability remains a key concern for Malaysian corporations.”
Additionally, the research house said net absorption rates have been positive for newer office buildings in 2024 in the Klang Valley, as tenants are on a “flight to quality” mode.
“On that note, older buildings are still expected to face pressures fighting for tenants moving forward.
“On the ESG front, more than one-third of the current office space is green-certified, underscoring the importance of sustainable office spaces in the market.”
Meanwhile, CBRE | WTW in its 2025 Market Outlook Report said new office developments in the Klang Valley are set to continue, with 2.5 million sq ft slated for completion in 2025, followed by 2.3 million sq ft in 2026 and an additional 1.3 million sq ft in 2027.
“Around 77% of these will be green-certified buildings, while 19% will comply with the Malaysia digital standards.”
CBRE | WTW said these new projects are expected to meet the demand for high-quality, future-ready offices, featuring Malaysian digital-compliant infrastructure and green building certification.
“This shift towards sustainable and tech-driven office spaces reflects the evolving preferences of multinational corporations and businesses seeking modern, eco-friendly work environments.”
By 2027, CBRE | WTW said 38% of new office supply (2.3 million sq ft) is projected to be completed outside KL; another 33% (two million sq ft) in the KL fringe; and 29% (1.8 million sq ft) in the KL city centre.
An analyst said the supply of office space, especially within the Klang Valley, continues to remain high.
“We expect the office sector to continue remaining challenging and to be a tenant market over the medium term,” he said.
Savills Malaysia Sdn Bhd group managing director Datuk Paul Khong said office demand will continue on with rightsizing and relocation activities.
“Key drivers include the ‘flight-to-quality’ trend, where tenants still prefer Grade A buildings featuring modern amenities, energy efficiency and public transit access.
“Environmental, social and governance (ESG) and sustainability initiatives are getting prominent.”
Additionally, Khong believes that flexible and co-working spaces will continue to grow, supported by hybrid work models and employee’s well-being priorities.
Savills Malaysia Worldwide Occupier Services head Zawani Abidin said the occupancy rate of high-grade office buildings in the Kuala Lumpur (KL) city area has rebounded, with some reaching or exceeding pre-pandemic occupancy levels, supported by their ability to meet tenants’ needs.
She noted that optimisation plans, led by hybrid working models, have impacted the office footprints.
“The ‘return to office’ is a real wave but it is directed towards the right office – in both size and specifications. More companies expect their offices to be smart and user-focused.
“There is no reprieve for ageing buildings that cannot be upgraded, particularly in locations that are losing out to the brighter gems within the city.”
CBRE | WTW advisory and transaction managing director Lim Chai Yin said demand remains steady for new, high-quality green buildings in prime locations, driven largely by relocations from older buildings, which are increasingly left vacant.
“Landlords of older buildings face challenges in retaining tenants, underscoring the need for upgrades or repurposing. Staff retention, operational costs and access to amenities are critical factors influencing leasing decisions.
“Rents for selected new buildings are rising, driven by higher occupancy rates and increasing maintenance costs. However, the rate of increase varies across the market,” she said.
According to Hong Leong Investment Bank (HLIB) Research, the office market will continue to serve up vacancy challenges with limited rental growth.
“The office sector continues to grapple with oversupply issues, with vacancy rate staying elevated at circa 33% as of the third quarter of 2024 (3Q24).
“Also, demand recovery remains sluggish and it struggles to absorb new supply in the Klang Valley, leaving office owners with minimal rental upside and negative rental reversion risk in 2025.”
From its channel checks, HLIB Research said rental reversion is expected to stay flattish, underscoring the subdued outlook.
“However, according to Savills Malaysia, office supply growth in Greater KL is projected to slow down to 0.5% to 1% in 2025 (2024: 2% to 3%) and this may offer some respite going forward.”
Separately, Kenanga Research said occupancy rates in 3Q24 stayed at 71.6% of a total private office space of 18.8 million sq m.
“Besides seeing growing demand for office spaces from high-growth sectors such as technology and finance, we believe offices at the fringe of KL and Selangor that are highly integrated are in a better position as compared with the KL city, as affordability remains a key concern for Malaysian corporations.”
Additionally, the research house said net absorption rates have been positive for newer office buildings in 2024 in the Klang Valley, as tenants are on a “flight to quality” mode.
“On that note, older buildings are still expected to face pressures fighting for tenants moving forward.
“On the ESG front, more than one-third of the current office space is green-certified, underscoring the importance of sustainable office spaces in the market.”
Meanwhile, CBRE | WTW in its 2025 Market Outlook Report said new office developments in the Klang Valley are set to continue, with 2.5 million sq ft slated for completion in 2025, followed by 2.3 million sq ft in 2026 and an additional 1.3 million sq ft in 2027.
“Around 77% of these will be green-certified buildings, while 19% will comply with the Malaysia digital standards.”
CBRE | WTW said these new projects are expected to meet the demand for high-quality, future-ready offices, featuring Malaysian digital-compliant infrastructure and green building certification.
“This shift towards sustainable and tech-driven office spaces reflects the evolving preferences of multinational corporations and businesses seeking modern, eco-friendly work environments.”
By 2027, CBRE | WTW said 38% of new office supply (2.3 million sq ft) is projected to be completed outside KL; another 33% (two million sq ft) in the KL fringe; and 29% (1.8 million sq ft) in the KL city centre.
Source: thestar.com.my