Knight Frank: KL prime office market improves in Q1, rents hold steady

New Straits Times

29-04-2025

KUALA LUMPUR: KUALA LUMPUR: Kuala Lumpur's prime office market showed further signs of resilience in the first quarter of 2025 (Q125), with strengthening occupier activity across key sectors despite a persistently high vacancy rate of 24.6 per cent, according to Knight Frank's latest Asia-Pacific Prime Office Rental Index.
Rental rates remained steady at RM6.01 per square foot per month, unchanged from the previous quarter, reflecting the market's durability amid ongoing global and regional uncertainties.
Occupancy levels improved, driven by expansion from technology firms and multinational corporations looking to reinforce their regional hubs in Malaysia.
"The downward trend of vacancy rates since the fourth quarter of 2023 (Q423) implied that the office market is getting better and more resilient," said Teh Young Khean, senior executive director, office strategy and solutions, Knight Frank Malaysia.
"Healthy take-up in the market has enhanced the performance of prime office buildings. The Kuala Lumpur office market has performed better and is no longer ranked as having the highest vacancy rate across APAC. The stable political and economic environment are one of the main catalysts for business expansion, especially in the services sector."
The report highlights that Kuala Lumpur's momentum mirrors a broader Southeast Asian trend, with emerging office markets gaining ground as tenants increasingly favour newer, amenity-rich buildings. This trend is gradually closing the gap between existing supply and active demand.
Although Kuala Lumpur's vacancy rate remains among the highest in Asia-Pacific, its stability on a quarter-on-quarter basis suggests the market could be reaching an inflection point. With minimal new Grade A supply expected in the near term, sustained demand could lead to a tightening of available stock.
Keith Ooi, group managing director of Knight Frank Malaysia, noted that Kuala Lumpur is well-positioned to support shifting workplace strategies as companies adopt hybrid models and pursue greater cost efficiencies.
He noted that Knight Frank continues to work closely with occupiers to navigate these decisions, ensuring they maximise value in a market that is rich in opportunity.
Tim Armstrong, global head of occupier strategy and solutions at Knight Frank, said, "As companies recalibrate their occupational strategies amid shifting global trade dynamics and economic uncertainties, the focus has turned to portfolio resilience, space efficiency, and long-term value. This evolving approach is prompting greater interest in flexible leasing models and right-sized footprints that support both cost control and workforce adaptability."
As the market adjusts, Knight Frank advises occupiers to take advantage of current opportunities to reposition or upgrade their spaces. Economic and geopolitical changes continue to shape occupier priorities, with flexibility, value, and quality emerging as key themes.
Looking ahead, Malaysia's office sector is expected to remain stable over the next 12 months, with a tenant-friendly environment persisting. While elevated supply levels and evolving workplace needs may continue to cap rental growth, the market is showing clear signs of steady recovery.
Kuala Lumpur recorded an annual rental growth of 2.6 per cent and a quarterly increase of 0.8 per cent, underscoring its gradual comeback.
Going forward, occupiers are likely to maintain a "flight-to-quality" approach, while landlords are expected to enhance building specifications and sustainability credentials to remain competitive in an increasingly discerning market.