This article first appeared in City & Country, The Edge Malaysia Weekly on October 7, 2024 - October 13, 2024

The overall office market in Kuala Lumpur and Selangor demonstrated a positive performance in the second quarter of 2024, marked by growth in occupancy rates and rents. This was largely driven by newer office spaces commanding higher rents and good absorption rates, while older, secondary buildings continued to face competitive pressures, according to Knight Frank Malaysia executive director of Research and Consultancy Amy Wong.

Presenting The Edge Malaysia | Knight Frank Kuala Lumpur and Selangor Office Monitor 2Q2024, Wong points out that although Kuala Lumpur’s office market recorded a slightly lower net absorption rate of approximately 356,000 sq ft in 2Q2024 compared with 377,000 sq ft in 1Q2024, the market still showed a steady demand for office space.

“Kuala Lumpur’s positive net absorption trend continues [in 2Q2024], outpacing Selangor this quarter with newly completed offices gradually filling up. Notably, the Klang Valley’s absorption in the first half of 2024 has reached close to 80% of the full-year 2023 total, indicating steady demand momentum,” Wong says.

Meanwhile, the Selangor office market registered a modest net absorption of 34,000 sq ft in 2Q2024, a decline of close to 80% compared with 1Q2024. This is partly due to the lack of new completions in Selangor during the period under review.

In 2Q2024, there was only one new completion — the International Commerce Centre Kuala Lumpur or better known as Pavilion Damansara Heights Corporate Tower 1 at Damansara Heights, Kuala Lumpur. The estimated net lettable area of the new completion is 233,000 sq ft.

As at 2Q2024, the office supply in KL City, KL Fringe and Selangor was 60.09 million sq ft, 31.7 million sq ft and 26.09 million sq ft respectively, bringing the total supply to 117.88 million sq ft.

During the same period, KL City has 0.67 million sq ft office space under construction, while KL Fringe has 0.69 million sq ft and Selangor, 0.91 million sq ft, bringing the total space under construction to 2.27 million sq ft. They are slated for completion between 3Q2024 and 2025.

Most of the newer office buildings in town continued to achieve a commendable net absorption rate in 2Q2024, where the majority of the notable tenant movements during the quarter were due to relocation, indicating the stronger trend of “flight to quality” and “flight to green”.

Some of the notable tenant movements were a gaming company shifting its office to a 19,000 sq ft space in Exchange 106 in Tun Razak Exchange (TRX), KL; an insurance company relocating to a 32,000 sq ft space in Pavilion Damansara Heights Corporate Tower 8 in Damansara Heights, KL; and a co-working and flexi space provider taking up 24,000 sq ft space in The MET Corporate Towers in Mont’Kiara, KL.

Completed in 2019, the Exchange 106 is located at the core of TRX and it is a Green Building Index Gold Standard-certified building. The floors boast up to 32,000 sq ft of column-free office space, the first in Malaysia.

As part of the bigger Pavilion Damansara Heights Corporate Towers completed in 2023, Tower 8 has an average floor area of 9,214 to 10,290 sq ft with 9.8ft ceiling heights. It is certified BCA Green Mark Gold Compliance rating.

The MET Corporate Towers, which comprises two towers, is the first Grade A stratified corporate office building in KL Metropolis, Mont’Kiara. It offers a typical layout from approximately 818 sq ft for Prime Levels and 3,606 sq ft for Premier Levels. The office building was completed in 2022.

Meanwhile, rental rates for offices in KL City registered a slight quarter-on-quarter (q-o-q) increase of 0.2% at RM6.59 psf. However, it remained unchanged for KL Fringe and Selangor at RM5.75 psf and RM4.16 psf, respectively.

For occupancy rate, KL City recorded a q-o-q increase of 0.7 percentage point (ppt) to 66.1%. KL Fringe and Selangor also increased by 0.8 ppt and 0.2 ppt q-o-q, respectively. 

Commenting on the market trend, Knight Frank Malaysia executive director (Office Strategy and Solutions) Teh Young Khean says the active expansion of co-working space providers demonstrated a growing demand for flexible workspaces, quick setups and hybrid working arrangements. This trend is reflected in the opening of more new branches and ambitious growth plans among the players.

“Moving into the second half of 2024, the market is expected to sustain this trajectory, buoyed by active enquiries from the flexi space, tech, insurance, oil and gas, professional services, as well as Global Business Services sectors for relocation or new office setup exercises,” Teh notes.

He also highlights that the launch of the KL20 Action Plan and the designation of the TRX as Malaysia’s International Financial Centre earlier this year are poised to invigorate the Klang Valley office market moving forward. “These government initiatives are likely to attract increased interest and activity, potentially spurring further investment and development within the sector.”

The KL20 Action Paper, introduced by the government, outlines policies to foster a conducive environment for investment and entrepreneurship. As part of this initiative, 12 international venture capital firms are set to establish offices and new funds in KL, with substantial assets under management and proven investment track records. Additionally, several high-tech companies are set to establish operations, research, and development facilities, along with regional headquarters targeting the Asian and Southeast Asian markets. These efforts aim to elevate KL to the ranks of the top 20 global start-up hubs by 2030.

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