Kuala Lumpur sees three new Grade A offices in Q2

Overall vacancy rates remained stable.

According to a JLL report, the quarter’s completions in Kuala Lumpur recorded about 529,600 sq ft, attributable to three significant office buildings, comprising two corporate towers in Damansara Heights (Towers 6 and 8) and Sunway Velocity V2 Office Tower.

Overall vacancy rates remained stable in the quarter, with a slight improvement in the KL City (KLC) submarket, which was largely led by movements from financial services, oil and gas, and IT companies, as well as travel agencies. The report added that vacancy rates in the KL Fringe (KLF) submarket were maintained despite the introduction of new additional supply, thanks to tenant expansions into the submarket.

Here’s more from JLL:

The office market was more subdued in the quarter, as leasing activities moderated and tenants displayed a cautious approach towards relocation and expansion due to cost considerations, with increased outgoings further putting their decisions on hold. The flight-to-quality trend remained apparent as tenants continued to seek and prefer newer and more sustainable buildings.

Lower net absorption was recorded during the quarter as most tenants chose to upgrade their space instead of expanding. Nevertheless, net absorption remained positive across all submarkets, mainly driven by take-ups in owner-occupied buildings and the movement of financial services and IT companies.

No new investment transactions in the quarter

Overall rent growth was led by the KLC and KLF submarkets as new and well-performing buildings further increased their rents. Tenants continued to take advantage of attractive rates to relocate to newer, more technologically-advanced buildings, such as the The Exchange 106 tower within the Tun Razak Exchange (TRX) development.

No new investment transactions were recorded during the quarter as most investors remained cautious amidst a global economic slowdown and a cost-sensitive market. 

Outlook: More new supply likely to push vacancy higher

Given the uncertain global economic outlook, demand is unlikely to see any significant increase in the short term. Greater Kuala Lumpur’s future supply pipeline is expected to witness an additional 1.9 million sq ft by the end of 2023 and another 2.4 million sq ft in 2024. This will likely cause vacancy to rise and put downward pressure on rents.

Investment-related transactions in the market are likely to remain soft as investors are expected to remain cautious due to global economic headwinds.

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