Kuala Lumpur to see over 3m sq ft of new office stock by year-end

Though only one completion was recorded in Q1.

Kuala Lumpur’s future Grade A office supply pipeline is expected to deliver over 3 million sq ft by the end of 2023, according to a JLL report. This will likely keep rents suppressed and vacancy rates relatively high. 

“However, with demand recovering, we may see more sporadic positivity coming out of the market in 2023 as the trends of flight-to-quality and ESG requirements of occupiers take centre stage,” the report said.

Here’s more from JLL:

Investment-related transactions in the market are likely to remain muted as the uncertain economic situation means that investors are likely to remain cautious. On the other hand, we have seen an increase in purchase requirements for owner occupancies as purchasers perceive more opportunities coming onto the market at somewhat attractive rates.

Market demand remains positive, largely led by DC locations

Net absorption continues its recovery, largely driven by the financial services industry as well as owner occupancies. This is seen to be stemming largely from the insurance industry, as the industry went through a period of high M&A activity, resulting in these companies either expanding or consolidating spaces.

Additionally, the tech industry has started picking back up with some of these companies beginning to reabsorb spaces that were let go during the pandemic. That said, tenants have been cautious with regard to expansion/re-absorption of office spaces in light of the cost-sensitive economic environment.

One new completion brings total stock to about 54 million sq ft

The quarter saw one new completion, Affin Bank’s new headquarters at TRX. As we understand it, the building has been 60% owner occupied with the remaining 40% being for the open market. 

Overall vacancy rates have recovered slightly. This was led by the Decentralised submarket, which has gained popularity amid changes to working cultures brought about by the pandemic, whereby companies increasingly want to be located closer to residential suburbs to accommodate hybrid working practices.

Quiet investment market; no new transactions in the quarter

Overall rental rates saw some growth, largely led by recently-completed buildings as well as well-performing buildings. This comes as market demand for newer, more advanced and more sustainable buildings grows stronger with the increasing importance of ESG in real estate. 

No new investment transactions were noted in the quarter. Interest in the office asset class among investors were seen to be increasing. However, most investors have maintained their wait-and-see approach as challenging economic conditions persist in a cost-sensitive market.

Note: Kuala Lumpur Office refers to Kuala Lumpur's Grade A office market.