But bright spots are appearing, posing significant changes for 2025
By Joseph Wong
The Asia-Pacific office market encountered significant challenges in 2024, with prime office rents declining by 1.6%—a slight improvement from the 2.4% drop in 2023. However, resilience emerged in select markets, as 16 out of 23 monitored cities reported stable or rising rents, particularly in Australia and Japan, according to the Knight Frank Asia-Pacific Q4 2024 Office Highlights.
In Malaysia, Kuala Lumpur’s office market remained highly competitive. However, key Grade A buildings in prime locations continued to attract strong occupier demand. The flight-to-quality trend saw corporate tenants gravitating toward office spaces with premium amenities and sustainability features, helping to maintain occupancy levels despite an overall subdued rental environment.
Echoing similar market sentiments, JLL Malaysia reported a slowdown in transaction volume and value, marking a cooling-off period in 2023 and 2024. The overall vacancy rate in Kuala Lumpur decreased to 16.5% in Q4 2024, noted JLL Malaysia office leasing advisory head Quiny Lee.
However, the KL city submarket showed significant improvement, with the vacancy rate reducing to 20.4% in the same period from 21.1% in the previous quarter.
“The Kuala Lumpur office market demonstrates ongoing resilience, driven by the increasing focus on sustainability and technological advancements. Tenants are actively seeking green-certified and technologically advanced buildings that align with their EGS commitments and operational needs,” she said.
Both agencies agreed that Malaysia’s office sector is undergoing a period of recalibration. The supply of premium Grade A office stocks, particularly in Kuala Lumpur, has attracted many multinational companies. Whilst landlords of older offices are adapting to evolving workplace demands by upgrading building specifications, enhancing sustainability features and offering attractive lease packages to retain and attract tenants, drawing back tenants seeking a more accommodating alternative.
"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 prioritising ESG objectives and employee well-being," said Knight Frank Malaysia group managing director Keith Ooi.
Trends shaping the market
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. In line with these trends, occupiers are placing greater emphasis on accessibility, connectivity and the overall employee experience.
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.
"While we continue to see challenges in the broader Asia-Pacific region, Kuala Lumpur’s office market remains dynamic despite recording a 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 trends for employment growth sustainability and talent retention. Overall occupancy rate and rental rates have shown slight uptick due to positive take up in KL City Centre especially Tun Razak Exchange (TRX)," said Knight Frank Malaysia office strategy and solutions senior executive director Teh Young Khean.
Regional performance
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 availability 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 Knight Frank Asia-Pacific research head Christine Li.
A year of opportunity
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.
The nation’s strong economic performance, with the Gross Domestic Product (GDP) growing by an estimated 5.1% year-on-year in Q4 2024, is providing tenants with confidence regarding their business prospects, said JLL Malaysia’s Lee.
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.
Landlords who are improving their buildings and offering greater rental flexibility will remain competitive, said Ooi.
“The Kuala Lumpur office market
demonstrates ongoing resilience,"
said Lee
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