Market demand softened in Q3 2025 but shows signs of recovery

• Market demand in Q3 weakened compared to the previous quarter due to market uncertainty from increased US tariffs announced in August and the SST extension to lease agreements, causing companies to adopt a cautious, cost-conscious approach that reduced net absorption.
• The logistics, F&B, and automotive sectors remained active, though leasing decisions were deferred until 2026 as companies adopted cost-conscious strategies amid SST implementation and market adjustments.

New supply addition maintains market health despite rising vacancy

• Daiwa Project Malaysia III completed in Q3 2025, contributing 1.2 million sq ft of new supply, while remaining pipeline projects experienced delays and shifted to 2026 delivery.
• The vacancy rate increased from previous quarter but remained low at a modest 6.3%. Despite new supply additions, this low vacancy rate indicates the market remained healthy.

Logistics market resilience through stable rentals and confident local investment activity

• Rental rates remain stable, but the extension of Sales and Service Tax (SST) and higher utility tariffs are pushing up operating costs by approximately RM0.01 per sqft per month, reducing net effective rents for the landlord.
• Local institutions and Malaysian REITs remain dominant players, executing strategic acquisitions to strengthen and diversify logistics portfolios by targeting high-quality assets in strategic locations despite economic uncertainties.

Outlook: Market Changes Drive Gradual Adaptation and Continued Growth

• Tenants are adopting stringent cost-conscious leasing strategies, creating a bifurcated market where only exceptional new properties with prime locations, advanced features, or build-to-lease arrangements can command premium rates.
• Market uncertainty and cautious tenant demand are causing developers to decelerate previously planned projects. The focus has shifted toward securing pre-committed tenants before development as the preferred model to minimize exposure.