Kuala Lumpur’s (KL) office market faces challenges due to its ageing building stock, with approximately 70% of buildings constructed before 2015. Although the proportion is lower than many surveyed global cities, local market dynamics present pressing issues, particularly in the Kuala Lumpur city (KLC) submarket, which has the highest concentration of old buildings. Older properties struggle with low occupancy and declining rental rates as tenants increasingly prefer newer, more sustainable spaces that align with their ESG goals. This “flight-to-quality” trend has created a need for asset enhancement initiatives to preserve and improve the value of older buildings.

Figure 1: Share of CBD office inventory by construction period across major global cities

Source: JLL Research, 2024

Figure 2: Office space stock by submarket and construction period across Kuala Lumpur submarkets:
The KLC submarket has the highest concentration of old building stock

Source: JLL Research, 2024

Beyond building grade and age, a myriad of factors impact asset value, including evolving tenant preferences, changing legislation and public perception, competitor offerings, as well as sustainability performance and climate risk. Today’s tenants seek spaces that offer amenities, health and wellness features and flexible workspace solutions that enhance human experiences, in addition to cutting-edge technology and sustainability credentials. Malaysia’s aim for carbon neutrality by 2050 further underscores the importance of asset enhancement initiatives (AEI). Many existing buildings will require significant upgrades to meet future sustainability standards. Research indicates that most top companies occupying office space in KL are expected to move to green office spaces by 2030, driving demand for sustainable workplaces. This trend presents an opportunity for landlords of existing, non-green buildings to implement AEIs. Property owners can capitalise on the growing demand for sustainable workplaces to ensure long-term competitiveness of their assets, as AEI offers a way to increase property values, occupancy rates, and rents.

However, AEI activity across KL submarkets remains low. Our research estimates that approximately 11% of the total stock and 16% of the older stock are undergoing AEI. The Kuala Lumpur fringe (KLF) submarket leads with 21% of the total stock and 29% of older stock undergoing AEI. In contrast, the decentralised (DC) submarket lags with only 3% of total stock and 4% of older stock involved in AEI. Despite these low figures, we are optimistic that landlords, especially REIT owners, will become increasingly proactive in undertaking AEI projects. This will help them meet their net-zero targets and ensure their properties remain competitive and attractive to tenants, given their responsibility to maximise shareholder value. Some REIT-owned buildings  have already embarked on AEI projects, such as Plaza Zurich and The Gardens North & South Towers in the KLF submarket.

Figure 3: Total office stock vs. AEI activities of office buildings across Kuala Lumpur submarkets:
The portion of buildings involved in AEI varies across different stages (undergoing, planning, or completed) for each submarket

Source: JLL Research, 3Q24

The scope of AEI can range from minor upgrades to extensive renovations or repurposing, depending on the building’s current condition, market demand, and competitive landscape. These initiatives often include improving energy efficiency, renovating common areas, implementing smart building technologies, and obtaining green certifications. As KL’s office market evolves, AEI will play a crucial role in transforming the city’s skyline and addressing changing tenant needs. Building owners who proactively invest in property enhancements will be better positioned to attract and retain tenants, maintain competitive rental rates, and contribute to Malaysia’s sustainability goals. The success of these initiatives will be key to ensuring the resilience and appeal of KL’s office market in the years to come.

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