This article first appeared in City & Country, The Edge Malaysia Weekly on February 24, 2025 - March 2, 2025

Rental rates in the Greater Kuala Lumpur logistics and industrial market are expected to see an increase in 2025, according to JLL Appraisal & Property Services Sdn Bhd (JLL Malaysia).

At the JLL Malaysia 1Q2025 press conference held on Jan 22, focusing on the Malaysian property sector, JLL Malaysia logistics and industrial senior manager Derek Yap noted that most warehouses with consistently high occupancy rates have been able to continue to raise rents.

“The completion of new buildings with high specifications at good locations also contributed to the increase. This increase in rents was balanced out by some landlords of older warehouses who reduced rents slightly to retain long-term tenants. In 2024, tenants tended to take larger spaces, expecting larger discounts in return,” said Yap, adding that while rental rates are expected to increase gradually, there is also a trend of yield stabilisation.

“This indicates a maturing market that continues to attract both local and foreign investment interest.”

He pointed out that other key factors driving demand in the logistics and industrial sector include increased activity from institutional players; robust demand from third-party logistic providers, automotive, medical devices and manufacturing companies; and Malaysia’s sustained growth in trade performance — with 3Q2024 total export value at RM384.1 billion, reflecting a year-on-year increase of 7.8%.

In terms of supply, five new warehouse developments are expected to be completed by the end of the year, adding roughly seven million sq ft of industrial space to the market. Among the developments are Plot 1 Phase 3A of Pulai Indah Industrial Park in Klang and the Shah Alam International Logistics Hub. Other notable upcoming developments include Bukit Raja Industrial Gateway Plots 3, 4 and 5 in Klang and Phase 2 of the YTL warehouse in Shah Alam — both of which are expected to be completed in 2026.

In Johor, the completion of new warehouses available for rent in 2025 is anticipated to drive up average rental rates, said Yap. “This is due to the high demand and rapid take-up for recently completed projects. 

We foresee that rental rates from 2025 will continue on an upward trend.”

He also attributed the increase to Singapore’s proximity and its previous moratorium on new data centre development, which led to a significant influx of data centre investments spilling over into Johor. “[Johor] offers more land and lower costs compared to land-scarce Singapore, driving operators to relocate their data centre supply chains in Johor. This migration has led to a substantial increase in warehouse rental rates in the region,” said Yap.

In mainland Penang, the rental rates are expected to demonstrate slowing growth, as additional space is set to be delivered within several industrial parks in the state, said Yap. He added, however, that current rental prices have spiked compared to historical rates, making it “difficult for many companies to afford these higher costs”.

Malaysia’s data centre segment is poised for remarkable growth, with an expected compound annual growth rate (2024 to 2028) of 69%, with Johor recording a 77% rate.

“The projected growth rates reflect an increasing confidence in Malaysia’s digital infrastructure, and its potential to become a key player in the global data centre landscape,” JLL Malaysia capital markets senior director K L Eng told the conference.

He noted that artificial intelligence (AI) would be the demand driver for data centres in the coming years, in addition to the ongoing digitalisation and cloud migration processes.

Within the Greater Kuala Lumpur area, Cyberjaya stands out as the powerhouse of the data centre market, accounting for 67% of the region’s total existing capacity of about 135mw. Other significant submarkets include KLCC (14%), Bukit Jalil (12%) and Petaling Jaya (3%).

“While the Malaysian data centre sector may experience a short-term ‘digestion phase’, as it absorbs the influx of incoming capacity and completion of infrastructure upgrades, among others, we are optimistic about the long-term prospects of the sector,” said Eng.

Echoing similar sentiments, JLL Malaysia head of research and consultancy Yulia Nikulicheva said the outlook for Malaysia’s logistics and industrial sector is promising. “The sector is experiencing a transition towards institutionalisation, with major institutional players increasing their involvement through strategic acquisitions and portfolio expansions.

“The industrial real estate market is set for strong, continued demand for high-quality prime warehouse space by companies proactively implementing the China+1 strategy. Furthermore, Malaysia is set to maintain its role as an emerging global hub in the data centre industry,” Nikulicheva said.

She advised, however, that one should remain cautious of market risks and recognise that across all segments, tenants and buyers are increasingly demanding efficiency and quality in spaces. “Well-planned, technologically advanced projects in prime locations are likely to perform better in today’s highly competitive environment.”

This year will be pivotal for commercial real estate markets, said JLL Malaysia chief growth officer Christophe Vicic, citing JLL’s Global Real Estate Outlook 2025 report, which featured insights from more than 2,300 business leaders worldwide. He highlighted several trends that will shape the market for the year.

For a start, he pointed out that supply shortages would intensify.

“New supply will decline across most property types, particularly in North America and Europe. This will lead to fierce competition for high-quality assets, especially in the office and industrial sectors.

“Next, there will be an early-mover advantage, with investors deploying capital in 2025 likely to see higher returns as the market enters a new liquidity cycle. Commercial real estate assets have outperformed most other assets over every five-year horizon since 1998. Sectors such as residential, logistics and data centres are expected to attract significant investments,” said Vicic.

With companies showing increased confidence in their space requirements, corporate confidence will accelerate decision-making.

“More certainty around space needs will drive right-sizing and optimisation in the near term, but longer-term expansion is just on the horizon,” said Vicic.

“There is also the trend of creating value in properties at risk of obsolescence. Up to 425 million sq m of existing office space may require substantial capital expenditure over the next five years to remain viable. This presents opportunities for repositioning and retrofitting ageing assets.”

Meanwhile, electricity demand is projected to rise in 2025 at its fastest pace for two decades, raising concerns about electricity costs and the security of supply, said Vicic. “Energy use is the single-largest operating expense, thus light to medium retrofits can unlock between 10% and 40% in energy savings.”

In the Malaysian context, he noted that JLL was observing trends that align with the global outlook. “We are seeing a shortage of green office space, surging demand in the logistics sector and challenges for older properties across market segments such as offices, logistics and retail. More landlords are considering asset enhancement initiatives to address these issues. The increased liquidity and local investor interest we saw in 2024 is expected to continue into 2025, reflecting the global trend of early-mover advantage in real estate environments.”

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