Signs of revival for Klang Valley's office sector, says HLIB

New Straits Times

4 days ago

KUALA LUMPUR: The Klang Valley office market is beginning to show signs of recovery after more than ten years of oversupply and weak demand, with anecdotal indications of stronger take-up in higher-quality developments.
Hong Leong Investment Bank Bhd (HLIB) said there are early signs of improved demand for high-quality office spaces, citing that Sunway's V2 Tower achieved near full occupancy within just a year of its completion.
It added that Sunway Square, a new twin-tower office project offering a total net lettable area of 1 million square feet and set to begin operations in the second half of 2025, has already secured 50 per cent tenant commitment for one tower, while negotiations are actively ongoing for the second tower.
"This is a promising pre-leasing milestone given the sizable floor plate. Asking rents for the office are also attractive at above RM6 per square foot (psf)," HLIB said.
The firm cited IOI City Tower 1 in Putrajaya as another example, noting that although the building was completed in 2015, it remained largely unoccupied for nearly nine years.
However, since 2024, occupancy has steadily improved, and the tower is now fully leased, signifying a significant turnaround for the property.
"Finally, IGB Commercial Real Estate Investment Trust, which owns a portfolio of office assets concentrated in the KL region, has shown steady improvement in both occupancy and rental rates.
"Average occupancy has climbed from 75.4 per cent in financial year 2019 to 89.2 per cent in the first quarter of 2025, while average rental rates are gradually improving from RM6.15 psf to RM6.42 psf over the same period," it added.
HLIB said Malaysia's economic focus is increasingly moving toward high-tech and high-value industries, fuelling demand for office-based activities such as research and development, design, and regional management operations.
"As foreign direct investments (FDIs) mature, many multinational companies are expanding beyond manufacturing into regional headquarters and support offices.
"Renewed political stability and clear national frameworks such as the New Industrial Master Plan 2030 and the National Energy Transition Roadmap are restoring investor confidence. Malaysia's cost advantage and skilled talent pool further strengthen its appeal as a regional office hub," it added.
Recovery Follows Years of Oversupply
The Klang Valley office market has experienced a prolonged slump over the past 10 to 15 years, mainly due to a persistent imbalance between supply and demand.
Average vacancy rates in Kuala Lumpur and Selangor have stayed elevated at 20 to 30 per cent, while rental prices have remained largely flat.
According to HLIB, this mismatch is the result of an aggressive surge in office development that far exceeded the pace of real business growth.
"Many of these large-scale office projects were completed during one of the weakest economic periods in recent times amid the onset and aftermath of the COVID-19 pandemic.
"Major completions during this period include The Exchange 106, Menara Affin, Menara IQ, Merdeka 118, and Pavilion Damansara Heights," it added.
HLIB noted that during this period, many businesses scaled back and remote work became more prevalent, leading to a surge of new office supply entering a market already struggling with weak demand.
The firm anticipates that the recovery will start in Selangor and the fringe areas of Kuala Lumpur, where oversupply is less severe, before gradually extending into the city centre as surplus space is absorbed over time.
HLIB believes that in this recovery phase, the best-performing offices will be newer Grade A buildings, those certified green with energy-saving features, properties well-connected to public transport and retail amenities, and those managed by strong property teams.