Tech companies drive demand for eco-friendly office spaces, fuelling net absorption growth

• Kuala Lumpur’s office market witnessed a positive demand trend, characterised by a substantial increase in net absorption. This growth can be attributed primarily to tenant relocations from Grade B offices and non-green buildings.
• There was a significant uptick in technology companies relocating to green buildings in Kuala Lumpur City in the quarter. This reflects their preference for eco-friendly office spaces and alignment with sustainability goals.

Project delays impact vacancy rates; limited availability of high-quality spaces observed

• There were delays in obtaining the CCC for PNB Project 1194, which was expected to be completed in Q2 2024. Sunway South Square accelerated the completion dates for its two office buildings in the quarter.
• One building was removed from the supply list as the landlord recently announced its plans to undergo a comprehensive refurbishment that entails significant renovations and updates to the entire building.

Rising demand for sustainable offices drives rents up; limited investment activity observed

• Rents in KLC surged in the quarter due to high demand for quality and sustainable office spaces. This trend of increasing rents for ESG spaces has led landlords to raise rates accordingly.
• Market activity was relatively quiet in the quarter due to the absence of Prime assets for sale. As a result, investment activity remained limited.

Outlook: Growing demand for green buildings sparks rent hikes and accelerates asset enhancements

• The ongoing demand for green-certified buildings in Kuala Lumpur City (KLC) areas is anticipated to fuel rent hikes, reflecting tenants’ growing preference for office spaces that promote sustainability and offer environmentally-friendly features.
• We expect that initiatives to enhance assets will accelerate in the medium-term as more buildings will require renovation works to match tenants’ requirements for green features and space quality.