Kuala Lumpur faces glut of obsolete buildings, not just oversupply
On the surface, it appears the city is overwhelmed by oversupply, but industry data points to a deeper issue: Kuala Lumpur faces not just excess space, but excess outdated space.
According to the National Property Information Centre (NAPIC), the occupancy rate for purpose-built offices in Kuala Lumpur fell to 72.1 per cent in 2023.
By mid-2025, Cushman & Wakefield reported a vacancy rate of 27.49 per cent, while Knight Frank placed prime office vacancy at 23.4 per cent.
The entry of new supply, such as the refurbished Menara 1194, Oxley Tower @ KLCC and several towers at Tun Razak Exchange (TRX), is expected to add millions of square feet of new space by next year.
However, the real problem is not a general oversupply, but rather a phenomenon of 'obsolescence oversupply'.
A JLL report found that around 70 per cent of office buildings in Kuala Lumpur were built before 2015 and now fall short on design, technology, and sustainability.
Tenants are shifting towards newer, Grade A buildings with green certifications and ESG features.
This trend is driving a sharp divide in performance across the city.
In emerging areas like KL Eco City and Bangsar South, vacancy rates are as low as 8.5 per cent, compared to 19.4 per cent in the older Kuala Lumpur Central Business District (CBD).
The rise of hybrid work has further accelerated this shift.
A 2024 Cisco study found that 60 per cent of Malaysian workers believe hybrid arrangements improve their work quality.
Flexible and modern workspaces are in demand, with providers like Common Ground reporting occupancy rates exceeding 85 per cent.
For owners of ageing buildings, the message is clear: passive strategies are no longer effective.
Instead, adaptive reuse is gaining traction.
Examples include the transformation of the historic Lee Rubber building into the Else Kuala Lumpur boutique hotel, the revival of REXKL as a cultural hub, and the conversion of Block A of Kompleks Pejabat Damansara into a boutique retail centre.
Policymakers are being urged to offer incentives and tax relief to support such transformations and promote sustainable urban renewal.
In the retail sector, a similar two-tiered trend is emerging.
NAPIC reported that occupancy in shopping complexes rose to 83.8 per cent in 2023, with private reports showing a further increase to 86.8 per cent by the end of last year.
Malls such as Suria KLCC, Pavilion KL, and The Exchange TRX continue to thrive, buoyed by strategic locations, curated tenant mixes, and experience-driven concepts.
The Exchange TRX, for example, features a 10-acre rooftop park designed to transform the retail environment into a lifestyle destination.
In contrast, older malls that have not kept pace with consumer expectations are struggling to retain tenants and attract footfall — an issue now dubbed "outdated experience oversupply."
The return of international tourism, bolstered by visa exemptions for Chinese visitors, is adding momentum to city-centre retail, with analysts forecasting rental rate increases of up to 10 per cent in 2025.
At the grassroots level, Kuala Lumpur City Hall (DBKL) is bolstering small businesses by upgrading seven hawker centres since 2023.
These sites offer cleaner facilities and accessible rent, with units priced as low as RM162 — and some at just RM40 per month — expanding opportunities for micro-retailers while supporting urban inclusivity.
Despite visible challenges, the market is not in crisis.
Kuala Lumpur is undergoing a structural transformation, with growth now concentrated in premium, flexible, and sustainable spaces.
With GDP growth projected between 4.4 per cent and 5.5 per cent for this year and supported by infrastructure developments such as the East Coast Rail Link (ECRL) and Bandar Malaysia, the long-term outlook remains positive.
Still, risks remain.
Continued oversupply in obsolete buildings, rising operational costs, and global headwinds could weigh on the sector.
For asset owners, initiatives such as green certification, adaptive reuse, and Asset Enhancement Initiatives (AEIs) are increasingly seen as essential to maintaining relevance in a changing market.
Overall, Kuala Lumpur's commercial property market is undergoing a transformative phase that demands owners, investors, and policymakers adapt, innovate, and deliver value that aligns with the expectations of a new generation of consumers and workers.
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