Further rental pressure looms for Malaysia’s office market

Blame it on the persistent supply-demand mismatch.

According to Knight Frank, the office market in Klang Valley remains challenging in the medium term amid looming supply and limited demand pool. With no immediate catalyst to boost office demand amid rising new supply, there is growing pressure on the office market. 

“In the near term, the rental rates and occupancy levels of office buildings in Klang Valley, in particular KL City, are expected to experience further pressure – this is amid growing mismatch in supply and demand and as more organisations especially MNCs embrace the hybrid work model,” the analyst said.

Here’s more from Knight Frank:

KL City continues to be the core of the Malaysian office market with most foreign interests choosing to have their initial office set-ups in a central KL location as prime KL City address is more recognizable on a global level. However, with the high impending office supply expected in 2023, the overall demand for office space will continue to be outpaced by existing and incoming supply. 

In the New CBD, the completion of grade A office space continues to heighten competition as landlords of existing and new buildings compete for the same pool of tenants / occupiers. The growing number of MNCs companies looking to set up their operations in premium or grade A office space, however, provides cushion to the oversupplied office market. 

Meanwhile, the decentralised office market in KL Fringe and Selangor, are expected to hold steady and resilient supported by strong domestic and regional occupier demand. The well-connected office locations enhanced by improved road connectivity and integrated rail infrastructure as well as the availability of a wide array of amenities continue to allure strong demand. Good quality decentralised office space with attractive rental and leasing packages remain favourable and continue to capture the market demand. 

Increasing awareness about different aspects of Environmental, Social and Governance (ESG) has led to higher interests towards green buildings. Green-rated buildings are becoming increasingly important as organisations seek to meet their sustainability goals. 

Occupiers are seeking facilities that support and complement their sustainability initiatives by improving resource efficiency and lowering carbon footprints. To remain competitive and appealing to potential occupiers, landlords are implementing ESG initiatives and aligning them with industry standards.