This article first appeared in City & Country, The Edge Malaysia Weekly on July 8, 2024 - July 14, 2024

In the first quarter of 2024, the Kuala Lumpur and Selangor office market showed significant progress, marked by overall improvements in occupancy and rental rates. Teh Young Khean, executive director (office strategy and solution) of Knight Frank Malaysia, foresees a growing demand for premium and environmentally sustainable office spaces in the upcoming period.

Presenting The Edge Malaysia | Knight Frank Kuala Lumpur and Selangor Office Monitor 1Q2024, Teh highlights the enduring “flight to quality” and “flight to green” trends.

“As the market gains momentum with improvements in occupancy and rental rates this quarter, there is an observed increase in demand for premium and environmentally sustainable office spaces. These ‘flight to quality’ and ‘flight to green’ trends are expected to persist [throughout] 2024 as occupiers reassess their workspace strategies and seek to upgrade their office environments,” he says.

Teh adds that incoming office supply is expected to decrease in the next two years while the new completions in 2023 have already achieved a healthy occupancy rate. These factors suggest a better absorption rate of new offices moving forward.

In 1Q2024, the Kuala Lumpur office market witnessed a net absorption of about 377,000 sq ft, almost 50% of the net absorption rate for the whole of 2023 of close to 800,000 sq ft.

Similarly, the Selangor office market experienced a notable increase in net absorption during the period under review, registering about 150,000 sq ft or close to half the total net absorption rate for the whole of 2023 of about 380,000 sq ft.

Some of the notable tenant movements in 1Q2024 were by an IT consulting services company, which expanded its office space by 10,800 sq ft in GTower, and a co-working and flexi-space provider, which took up another 7,000 sq ft in Menara 1 Sentrum.

Apart from office expansion, Teh attributes the encouraging absorption rate to tenant relocations to newer office buildings for a better environment and location.

For example, an investment holding and consultancy services company moved into a 19,900 sq ft space in Sunway Velocity V2 Office Tower; a construction company and a beauty and pharmaceutical company relocated to The MET Corporate Towers, occupying a combined area of 195,500 sq ft; and Menara Affin and Menara IQ in TRX each saw a tenant move in and occupy a big floor plate of 16,600 sq ft and 16,300 sq ft respectively in 1Q2024.

Sunway Velocity V2 Office Tower is a 27-storey, MSC-compliant building with GreenRE Platinum rating. It offers a typical floor area of 21,000 sq ft and has a total area of 362,381 sq ft. Located along Jalan Peel, the building is within walking distance of Maluri MRT Station.

The MET Corporate Towers is the first Grade A strata office space in Mont’Kiara. The twin-tower office building offers typical layouts of 818 to 3,606 sq ft and offers facilities such as a business auditorium, gymnasium and wellness centre, glass box function hall and business centre. It is a Green Building Index (GBI)-certified building with green features such as an energy-saving softscape and a rainwater harvesting system.

Sitting on a 1.25-acre site, the 43-storey Menara Affin has a total gross floor area of 823,740.5 sq ft. It is a GBI Gold-certified building with 79 points, Leadership in Energy and Environmental Design (LEED) Gold certification, a Qlassic score of 86% and an industrialised building system score of 70 points.

Meanwhile, the 33-storey Menara IQ is a premium Grade A+ international-standard office building with a net lettable area of 555,419 sq ft. It is also a LEED Gold building designed for MSC status. The floor plate size ranges from 17,500 to 20,050 sq ft.

According to Knight Frank Malaysia, the total office supply in Kuala Lumpur and Selangor stood at 117.92 million sq ft in 1Q2024, with 2.45 million sq ft under construction. Only one new office — Felcra Tower in Jalan Semarak, Kuala Lumpur — was completed during the period under review. It is a mixed development that consists of a 35-storey office tower and a 43-storey serviced apartment called Semarak Residence.

According to Knight Frank Malaysia, the three office submarkets in the Klang Valley continued to remain stable in 1Q2024, with rental rates seeing a modest increase while Selangor held steady. The occupancy rate also rose slightly across all localities.

“Positive net absorption continues this quarter, driven by tenant relocations to newer office buildings in the New CBD, KL City Centre Peripheral and the TTDI, Mont’Kiara and Dutamas areas,” says Knight Frank Malaysia executive director of research and consultancy Amy Wong.

The KL City rental rate in 1Q2024 increased by 0.5% to RM6.58 from RM6.55 in 4Q2023, while the occupancy rate grew 1.1 percentage point (ppt) quarter on quarter (q-o-q) to 65.4% from 64.3%.

For KL Fringe, the average rate increased 0.2% to RM5.75 from RM5.74 in 4Q2023 while the average occupancy rate was 85.2%, an increase of 0.8ppt from 84.4% in 4Q2023.

The rental rate in Selangor was maintained in 1Q2024 at RM4.16 psf but the average occupancy rate saw a q-o-q increase of 0.8ppt to 75.4% from 74.6%.

The research firm anticipates that the Klang Valley office market will continue to attract multinational corporations seeking to establish regional hubs.

Citing its recent findings, Knight Frank Malaysia says the country contributes over 8% to the Asia-Pacific offshoring market and the opening of new offices underscores the better prospects for the office market. The key drivers of the trend include competitive rental rates, a rich talent pool and robust government support for developing the country’s digital economy.

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