Sustainable spaces and sector growth drive leasing activity

• The KL office market is showing positive momentum, driven by high-quality, ESG-compliant spaces attracting tenants, particularly MNCs. Offices linked to retail malls, offering F&B and other amenities, are particularly in demand.
• Active leasing in the office market by the business services and technology sectors is primarily driven by tenants consistently seeking space near transit-oriented developments (TODs), illustrating the benefits of accessibility and sustainable urban planning.

Two office completions amid market adjustments

• Two office buildings were completed in Q4: PNB project 1194 and Met 1 Corporate Office in KL City in KL Fringe, adding about 470,000 sq ft of NLA and potentially impacting local commercial real estate dynamics. However, ongoing supply delays persist.
• Developers of planned office buildings in decentralised areas, such as PJ Sentral, paused or delayed projects to adapt to shifts in tenant requirements, while landlords of older buildings continued to pursue asset enhancement initiatives to maintain competitiveness.

Rent growth and selective investment activity

• Kuala Lumpur City (KLC) saw the highest rent increase, followed by moderate growth in the Decentralised area. Fringe area rates remained stable. Overall, regional rents rose 1.1% q-o-q, indicating a gradual positive trend.
• This quarter saw a significant transaction in KL’s commercial real estate market, with IGB Commercial REIT acquiring two floors of Menara Southpoint in Mid Valley City from IGB Berhad, aligning with their strategy for stable income distribution and long-term growth.

Outlook: ESG momentum continues as strategic location emerges as future office market Driver

• Offices near regional malls with strategic locations are likely to maintain lower vacancy rates in the future, benefiting from excellent connectivity and access to diverse amenities, making them increasingly attractive to tenants.
• Older office buildings are losing appeal among tenants, leading to increased vacancies. Some landlords of these ageing properties are lowering rents to attract cost-conscious companies.