Savills Malaysia Sdn Bhd group managing director Datuk Paul Khong.
PETALING JAYA: The office sector is anticipated to see a pick-up in occupancy rates in 2025, but challenges are expected to remain, experts say.
Savills Malaysia Sdn Bhd group managing director Datuk Paul Khong (pic) said the Klang Valley office market in 2025 will continue to be a “tenant’s market” as vacancy rates remain elevated.
“The office market continues to move well in the right direction, though at a slow pace as oversupply issues continue.
“We anticipate further rightsizing and relocation initiatives of more businesses into 2025,” he told StarBiz.
Nevertheless, Khong said tenants will continue to upgrade to high-quality premises.
“This is especially because occupancy costs in Malaysia are one of the cheapest in the region.
“Additionally, we see growing demand for green-certified offices that promote the environment and the employees’ well- being.”
Additionally, Khong said new Grade A office buildings will continue to pose challenges to older and lower-grade offices when it comes to tenant retention, moving forward.
“Landlords with a strong financial capacity will want to revisit their refurbishment or redevelopment plans for the future,” he explained.
Knight Frank Malaysia office strategy and solutions executive director Teh Young Khean, meanwhile, remains upbeat over the office market.
“We remain positive on the office market outlook, with notable multinational companies expanding and setting up business in Malaysia (especially Kuala Lumpur) due to its competitive real estate cost and welcoming business environment.
“Despite higher vacancy rates in the Asia-Pacific region, Kuala Lumpur (KL) City continues to show steady signs of improved occupancy and rental rates of prime grade buildings from quarter-to-quarter.”
As of the third quarter of 2024 (3Q24), Khong said Greater KL’s total office supply stood at 145.8 million sq ft, with a vacancy rate of 28.3%, slightly improved from 28.5% in 2Q24.
“Two new office buildings were completed, namely the PNB Project 1194 in KL City and Atwater Corporate Towers A and B in the outer KL regions.
“Both added 0.54 million sq ft of office space. We further expect another 1.1 million sq ft of new office space in Greater KL by end-2024, bringing the cumulative supply to about 146.9 million sq ft.”
In terms of demand, Khong said rental rates of Greater KL’s office market remained stable at an average gross rental rate of RM5.60 per sq ft per month.
“KL City’s prime saw a slight quarterly increase of 1.2%, with the average monthly rental rising to RM8.70 per sq ft in 3Q24 from RM8.60 per sq ft in 2Q24.
“Occupancy rates, meanwhile, reached 71.7% in 3Q23, thus marking a slight quarterly increase of 0.3% from 2Q24.”
Meanwhile, down south in Johor, Olive Tree Property Consultants chief executive officer Samuel Tan said the average occupancy rate of all purpose-built offices in the first half of 2024 was 50.6%, compared with 52% in 2023.
“For Grade A purpose-built offices, the occupancy rate is lower at 31.7%. However, it is an improvement from 26.6% in 2023.
“The lower occupancy rate is due to higher rental rates of between RM4 and RM5 per sq ft. Older buildings fetch between RM2.80 and RM3.50 per sq ft.”
With developments such as the Johor-Singapore Special Economic Zone (SEZ) and Johor Baru-Singapore Rapid Transit System (RTS) down south, Tan said the take-up of purpose-built offices is expected to improve.
“Purpose-built offices near the RTS will be the main beneficiaries. Offices within Medini City will also enjoy this trend if it is made an SEZ.
“Forest City will see a good take-up as it is now designated as an SEZ. Family offices and related professional services will find their way there,” he said.
