Savills Malaysia’s top predictions for 2025

Contributed by Datuk Paul Khong

As we step boldly into Q1 2025, the stage is set for a transformative year brimming with promise and opportunity. Anticipation is high for a surge in investor confidence, fueling heightened activity across key markets. Globally, all eyes are on the seismic shifts that the new US president’s inauguration will bring, with a laser-sharp focus on navigating the intricate dynamics with China. This is the dawn of a year that promises to redefine the landscape of growth and resilience.

On the local front, Malaysia’s economic outlook for 2025 remains robust, though it is expected to be an adaptive year marked by some structural shifts. Strategic investments, coupled with a strong industrial base and supportive policies, are poised to drive economic inclusivity and sustainability, fostering continued growth in the property sector.

The year 2024 concluded on a high note, outperforming 2023 in terms of economic growth, resilient domestic demand, export activities and a healthy job market. Malaysia recorded a 5.3% growth in Q3 2024, with full-year growth projected between 4.5% and 5.5% (compared to 3.6% in 2023). Key sectors such as manufacturing, services and tourism have not only surpassed recovery levels but also thrived, driven by increased consumer spending and favourable market conditions.

Malaysia performed exceptionally well as an investment destination in 2024, as anticipated, recording a significant rise in foreign direct investments (FDI). The country attracted RM255bil in approved investments across services, manufacturing and primary sectors, spanning 4,753 projects—a 10.6% increase compared to RM230bil in the first nine months of 2023. Domestic investments contributed 58.1% of the total approved investments, underscoring Malaysia's balanced growth dynamics.

The real estate sector also experienced a remarkable surge in transaction activity, particularly in land, industrial and commercial assets. Data reveals that major real estate transactions totalled RM13.9bil in the first nine months of 2024, nearly doubling the RM7.29bil recorded during the same period in 2023.

Land transactions accounted for approximately 64% of the total transaction value, followed by retail properties at 23.9% and industrial properties at 4.92%. This upward trend highlights Malaysia's growing appeal as a robust real estate market, driven by strategic investments and expanding economic opportunities. The momentum of 2024 sets the stage for 2025.

Industrial continues its wins

The industrial sector is poised for another remarkable year in 2025, riding high on the momentum of significant geopolitical shifts and transformations in global supply chains.

The aftermath of Covid-19 prompted businesses to prioritise operational resilience, leading to widespread diversification in logistics and manufacturing networks. Compounding this, the ongoing US-China trade tensions have further accelerated the demand for logistics hubs and manufacturing facilities, as companies seek to de-risk and regionalise their supply chains.

Malaysia stands out as a prime beneficiary of these trends. Its strategic location at the heart of Southeast Asia, coupled with its competitive edge in infrastructure, cost efficiency and skilled labour force, positions the country as a key player in this global realignment. As industrial activities gain traction, Malaysia's industrial sector is set to flourish, cementing its role as a critical hub for logistics and manufacturing in the region.

Logistics, industrial and data centre head Kevin Goh expects that key sectors in Malaysia will continue to attract foreign direct investments (FDI) from the electrical and electronics, semiconductors, medical technology (MedTech), pharmaceutical, automotive (EV) and green technology industries.

“Concentrations will remain in the Northern, Central and Southern regions, with Sabah and Sarawak also gaining momentum due to rapid infrastructure developments. More smart manufacturing plants are expected to be built to minimise manufacturing downtime and production waste (part of ESG initiatives) in 2025,” he said.

As for data centres, Goh predicts a go-slow on new site acquisitions by data centre operators due to concerns about development approvals.

More mix development projects with urban growth

We foresee strong interest in mixed-use property projects near expanding rail connectivity and transit-oriented development (TOD) zones. These projects are set to become the hottest spots to watch:

• LRT3 Line: Featuring 25 stations, this line connects Bandar Utama to Klang and is set to be operational by Q3 2025.
• JB-Singapore RTS Link: Scheduled to be operational by early 2027, this link will enhance cross-border connectivity.
• MRT3 Line: Expected to be completed by 2027, adding a significant boost to urban transit.
• Mutiara LRT Line, Penang Island: Construction is slated to begin in 2025, with completion targeted for 2030.

Office remains a tenant’s market

The office sector is expected to remain tenant-driven into 2025, with high vacancy rates persisting. Amid global uncertainty and the start of Trump’s presidency, office demand will likely continue to be shaped by rightsizing and relocation activities.

Key drivers include the ongoing flight-to-quality trend, where tenants increasingly prefer Grade A buildings that offer modern amenities, energy efficiency and convenient access to public transit. ESG and sustainability initiatives are also becoming more prominent, influencing tenant preferences.

Additionally, flexible and coworking spaces are set to expand further, supported by hybrid work models and a growing emphasis on employee well-being.

Worldwide occupier services head Zawani Abidin highlighted that the occupancy rate of high-grade office buildings in KL City has rebounded, with some achieving or even surpassing pre-pandemic levels due to their ability to cater to tenants’ evolving needs.

“Office optimisation plans driven by hybrid working models have influenced office footprints. The Return to Office is indeed a tangible trend but it’s focused on the right office—meeting the appropriate size and specifications. Increasingly, companies expect their offices to be smart, efficient and user-centered. Ageing buildings that cannot be upgraded, especially in locations overshadowed by more vibrant and modern options within the city, face little hope of revival,” she stated.

Retail outlook remains strong

In the meantime, the retail sector is expected to remain dominated by top megamalls in major cities, which continue to expand their net lettable areas to maximise income and attract premium tenants. These flagship malls set the standard by offering comprehensive shopping and entertainment experiences that cater to evolving consumer demands.

Simultaneously, new retail malls are emerging, particularly in underserved areas. However, these newcomers may encounter challenges, often requiring several tenancy cycles to stabilise occupancy rates and establish long-term success.

Older malls that lack strategic planning or modern features are likely to struggle in this competitive environment, facing the risk of obsolescence as the retail landscape becomes increasingly consumer-driven.

Retail services head Murli Menon reflected on 2024 as a year of resurgence for physical retail, recording robust mid-single-digit growth compared to 2023, largely driven by the food and beverage (F&B) sector as well as sports and athleisure retail. These trends are expected to persist in 2025, with continued expansion in F&B retail and the rise of emerging sports like pickleball and padel. These activities, blending lifestyle and social engagement, could open new retail opportunities.

“The growing popularity of local and indie cafes in 2024, partly fueled by boycotts of certain international brands and a consumer shift towards better value, has supported these homegrown brands in expanding internationally,” he noted.

Commenting on e-commerce, he emphasised that businesses venturing into physical stores often achieve success. “The retailers that thrive are those delivering consistent service, offering diverse product ranges and selecting prime locations,” he added.

Uptick on hospitality property

New site acquisitions by data centre operators are likely to slow down due to concerns about development approvals.

Moreover, the hospitality sector is gearing up for Visit Malaysia 2026, aiming to benefit more from revitalised tourism. More hotel brands are expanding in Malaysia such as Marriott International, Banyan Group, Ascott, Langham Hospitality Group and Hyatt.

It is also observed that more tourism-oriented developments, offering hotel-like apartments and short-term rental units, are being launched nationwide. This hybrid model development blends residential and hospitality elements, aiming to cater to both tourists and investors.

Research and consultancy head Fong Kean Hwa highlighted that hotel-like apartments are gaining traction in Malaysia’s major tourist cities. In Kuala Lumpur, these developments are most prominent in the Golden Triangle, particularly in the TRX and KLCC areas.

Developers are offering attractive investment opportunities by guaranteeing returns or profit-sharing through collaborations with short-term rental operators, making the concept more appealing to potential investors.

"Similarly, locations such as Genting Highlands and Cameron Highlands have seen the rise of such developments, attracting strong investor interest due to operators' proven track record in managing short-term rentals. Developers benefit by selling units to investors, while investors earn profits from rental returns. Fong noted that this mutually beneficial business model is expected to drive further growth," he said.

Capital markets head Nabeel Hussain added that the property investment market is finely poised, with diversification across asset classes becoming a key strategy for many investors.

"Looking ahead, a couple of notable commercial deals are expected to reach the signing stage in early 2025. While the traditional asset class is expected to pick up in 2025, there is also growing interest across various new asset classes. The proposed reduction (to be presented to Parliament in 1H2025) in the minimum threshold (from 100% currently to 75-80% in the future) for the collective sale/ redevelopment of older stratified properties may unlock fresh opportunities," he said.

The overall property prices are expected to rise in new builds due to higher construction costs and with improving connectivity near TOD zones, land values nearby are also likely to increase, said group executive director Marcus Chia.

"While the prime office market outlook remains positive, Marcus is concerned about the high vacancy rate in older and lower-grade offices. The ESG theme is gaining importance, with real estate development and investment increasingly being shaped by sustainability, energy efficiency and responsible practices. The government’s support for ESG is further reflected in Budget 2025, with financial institutions also incorporating ESG financing packages," he noted. 

It is crucial to note that Budget 2025 did not prioritise the property sector, with most of the measures not being real estate-driven. No specific incentives were allocated to the industry, leaving it on the back burner once again. Both developers and property investors will need to navigate 2025 much like they did in 2024.

The year ahead will be one of adaptation, especially with the government expected to introduce transformative policy measures in the middle of the year. While inflation and rising costs are likely to persist, we anticipate that Bank Negara Malaysia (BNM) will maintain a stable interest rate environment to provide some support.

Datuk Paul Khong,
Group managing director and head
Savills Malaysia

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