This article first appeared in City & Country, The Edge Malaysia Weekly on March 10, 2025 - March 16, 2025

For 2025, the country’s real estate market is anticipated to be driven by the robust industrial sector, evolving office and retail markets, rebounding hospitality sector and sustained residential market, according to Knight Frank Malaysia’s Real Estate Highlights 2H2024 report that was launched in January.

“Malaysia’s property market continues to grow, underpinned by sustained demand for housing, shifts in global supply chains fuelling demand for industrial spaces, rising data centre investments, and strong recovery in the hospitality segment. Coupled with rising demand for sustainable and green-certified developments, the industry is poised for a progressive and dynamic year ahead,” said Knight Frank Malaysia senior executive director Judy Ong in a statement accompanying the report’s release.

Last year, the property market saw steady growth across various sectors, driven by strategic investments, infrastructure upgrades and evolving market demands. “The industrial sector led the way with advancements in technology and sustainability, while the office and retail markets continued their recovery, supported by shifting occupier preferences and consumer spending. Meanwhile, the hospitality sector saw a boost in tourist arrivals and high-end residential properties maintained stable demand, aided by government initiatives and infrastructure improvements," the statement said.

Knight Frank anticipates the property market to build on this momentum.

“The industrial sector is growing rapidly and the hospitality industry is making a strong recovery. There are plenty of opportunities for investors and stakeholders. Moving forward, a strong focus on sustainability will be crucial for future strategic investments,” said Knight Frank Malaysia executive director of research & consultancy Amy Wong.

“Malaysia’s property market has consistently adapted to challenges, paving the way for sustainable growth. With our emphasis on ESG, innovation and infrastructure development, we are confident the market will continue to thrive, reinforcing Malaysia’s position as a regional leader,” said Knight Frank Malaysia group managing director Keith Ooi.

In the industrial space segment, investor confidence in the Klang Valley remains strong, driven by substantial foreign and domestic investments across high-growth sectors such as green technology, transport and logistics, the report said. “Nationwide, numerous joint ventures and partnerships are underway, with Selangor emerging as a key player. The state is positioning itself as a leader in semiconductor and advanced manufacturing industries, reflecting its alignment with broader economic and technological trends.”

However, it added that the emergence of new, large-scale industrial developments is expected to heighten competition in the market. “As these projects reach completion, they may exert downward pressure on prices and rental rates in the short term.”

Meanwhile, the role of real estate investment trusts (REITs) in the industrial real estate sector continues to evolve in response to shifting market dynamics, Knight Frank observed. “Historically significant, REITs now face challenges in sourcing institutional-grade assets, prompting a strategic pivot. For instance, REITs such as Axis are increasingly targeting sites with shorter-term potential that offer redevelopment opportunities. This shift highlights the changing priorities as REITs aim to unlock value through innovative asset strategies in a competitive, supply-constrained environment.”

In Johor, strategic locations such as Kulai are emerging as investment hotspots, driven by their focus on high-value industries, including logistics, clean technology and advanced manufacturing, the report noted. “Infrastructure expansions, such as port enhancements and the development of advanced industrial parks, are further solidifying Johor’s position as a regional trade and investment hub.”

While the state’s industrial property market is poised for sustained growth, bolstered by its commitment to sustainability, the development of high-tech ecosystems and strategic infrastructure projects, the report noted that challenges such as high water and energy consumption present opportunities for collaboration between the government and private sector. “Addressing these issues could involve incentives for businesses adopting sustainable practices and encouraging the use of alternative water resources to ease local resource strain.”

The industrial market in Penang is projected to sustain its growth momentum, driven by substantial foreign and domestic direct investments and the development of new industrial parks by both public and private entities. “This positive trajectory is further bolstered by transformative initiatives such as the Penang Silicon Design @ 5km+ and the development of Silicon Island, which are set to strengthen Penang’s position as a global technology hub,” the report said.

Additionally, the planned expansion of Penang International Airport (PIA) is anticipated to attract more businesses and investments to the region while improved public transportation projects such as the upcoming Penang LRT Mutiara Line and the Juru-Sungai Dua Elevated Highway will enhance intra-state connectivity, reduce traffic congestion and improve accessibility to key areas.

An increasing emphasis on sustainability is also shaping industrial developments in the northern state, with projects like Northern TechValley @ BKE adopting green building practices, Knight Frank observed. “The integration of renewable energy sources, such as solar power, into industrial facilities not only reduces operational costs and environmental impact but also aligns businesses with global sustainability standards, helping to future-proof operations.”

Sarawak’s industrial sector is poised for significant growth, supported by strategic infrastructure development, a strong focus on renewable energy and increasing investments in key industries, the report said. “Sarawak’s commitment to renewable energy, particularly hydropower, has established the state as a regional leader in sustainable energy. The development of green hydrogen projects, supported by the state’s abundant hydropower resources, is set to attract significant investments and foster opportunities in related industries.”

The Klang Valley office market is poised for continued recovery, supported by gradual improvements in rents and occupancy rates, the report said. “Although these metrics remain below pre-pandemic levels, the steady rebound is underpinned by resilient demand from both local and international occupiers.

“Recent occupier movements highlight the market’s growing appeal, particularly among global companies establishing or relocating shared services offices in the Klang Valley. This attractiveness is driven by factors of high-specification office spaces, access to a skilled workforce and cost-competitiveness,” it added.

While the supply pipeline remains moderate — 2024 saw the completion of 0.8 million sq ft of office space with an additional 1.5 million sq ft expected by 1H2025 — older and lower-grade office buildings may benefit from targeted upgrades, modernisation or asset repositioning to meet market demands, the report said.

It highlighted that larger floor plates, typically around 20,000 sq ft or more, are being increasingly favoured, particularly in the KL Fringe and Petaling Jaya areas. “These locations are highly attractive due to their robust amenities and excellent connectivity, including proximity to train stations.

“Upcoming developments such as The Exchange TRX Office by Lendlease and Sunway Square Corporate Tower 2, both slated for completion in 1H2025, are projected to generate significant interest. These projects offer expansive floor plates exceeding 20,000 sq ft.”

While investment activity in the sector is anticipated to remain cautious amid broader economic uncertainties and shifting tenant preferences, the report said prime assets with strong tenancy profiles and strategic locations are well-positioned to attract long-term investors seeking stability and growth opportunities in the Klang Valley office market.

In Johor Bahru, Grade A office spaces are expected to remain a highly sought-after option for new tenants, the report said.

“Factors such as lower rental rates, reduced operational costs, potential incentives from the Johor-Singapore Special Economic Zone and lower cost of living make Johor Bahru an attractive location for Singaporean companies. Consequently, older office buildings may undergo repurposing or refurbishment to cater for the growing demand for modern, high-quality office spaces.”

In Penang, the office market is expected to remain stable in 2025, despite the addition of two new office towers (GBS by the Sea in Bayan Lepas and a 34-storey commercial tower at The Light City in Gelugor) contributing a combined 480,000 sq ft of space.

“While the increased supply may place some downward pressure on rental rates for older purpose-built office buildings, modern and well-equipped office spaces are anticipated to sustain steady demand due to their competitive advantages and alignment with evolving tenant preferences.”

In Kota Kinabalu, while the office market is expected to remain stable due to the absence of new supply entering the market, the report said government initiatives aimed at enhancing Sabah’s appeal to multinational corporations and international firms are anticipated to sustain demand for office spaces, particularly in prime locations. “As the current limited supply of prime office space nears full occupancy, new demand for high-quality, strategically located offices may emerge, creating opportunities for future development.”

Sarawak’s commercial property sector will be driven by ongoing infrastructure development, investment inflows and sustainability-focused initiatives, Knight Frank anticipates. “The state’s post-Covid-19 Development Strategy (PCDS) 2030 outlines ambitious goals including achieving significant GDP growth through carbon trading, hydrogen production and hydropower development. These initiatives are expected to boost demand for commercial spaces across subsectors.”

Launched in November 2024, the PCDS 2030 targets RM282 billion in GDP and a median household income of RM15,000 by 2030.

While the retail sector in the Klang Valley remains cautiously optimistic, supported by government measures aimed at mitigating rising living costs and adapting to evolving consumer preferences, the report noted that the market is witnessing significant supply growth.

“Developments such as Bloomsvale Shopping Gallery, Elmina Lakeside Mall and 168 Park Mall exemplify a shift toward neighbourhood-centric and community-focused retail spaces. These projects, designed to integrate modern amenities with lifestyle elements, are attracting strong tenant interest, reflecting a sustained demand for curated retail experiences.”

Notable acquisitions in 2H2024, such as Tropicana Gardens Mall (now IOI Mall Damansara), DPulze Shopping Centre and Sunway 163 Mall (now Sunway 163 Mall), reflect continued confidence in the sector, it added. “These transactions underscore the focus on strategically located assets with high-quality tenant mixes and strong footfall potential.”

Technological advancements, evolving consumer behaviours, inflationary pressures and changes in government policies will demand strategic flexibility, adaptability and innovation from retailers, the report said.

“Focusing on experiential, community-centred and technologically integrated retail formats will be essential for maintaining growth and resilience in the Klang Valley’s dynamic retail sector. By proactively addressing emerging challenges and aligning strategies with shifting consumer priorities, the sector can effectively position itself to capitalise on long-term opportunities.”

The retail market in Johor Bahru is expanding, according to the report, with more brands entering the market, supported in part by the strong Singapore dollar, which has driven increased retail spending in the city. “Johor Bahru’s retail market has shown significant improvement, marked by higher occupancy rates and increased foot traffic in malls. Retailers are responding to evolving consumer preferences by diversifying their offerings and incorporating entertainment and medical elements into mall environments.”

In Penang, the retail market is projected to remain stable in 2025, underpinned by several positive drivers, including increased retail spending, the entry of new brands, expanded flight routes and frequencies and growth in tourism-related activities, the report said.

“However, the recent opening of Sunshine Mall in October 2024 and the anticipated completion of The Waterfront Shoppes Phase 1 in 2H2025 are expected to heighten competition within the state’s retail sector, particularly on Penang Island. This could exert downward pressure on occupancy rates and rental levels.”

In Kota Kinabalu, Knight Frank expects prime shopping malls to adopt strategic measures to optimise operations and strengthen their market position with key focus areas including filling vacant retail spaces and enhancing tenant mix and performance. “This strategy is anticipated to contribute to higher turnover rents, further reinforcing the financial sustainability of these retail assets.”

The hospitality sector in the Klang Valley will see a wave of new luxury and upscale international hotel openings in 2025. “Prominent brands such as Kempinski Hotels, Waldorf Astoria and Park Hyatt are expected to enter the market, driving strong growth in average daily rate (ADR).

“With rising tourist arrivals and active tourism promotion, the industry is well-positioned for sustained recovery, reflecting investors’ confidence in the sector. This continued expansion, combined with Malaysia’s robust tourism initiatives, improved connectivity and strategic government efforts, underscores the resilience and growth potential of the country’s tourism and hospitality sectors.”

Notably, the introduction of visa-free policies for Chinese and Indian tourists has been a key driver in the recovery of Klang Valley’s hospitality sector, as reflected in the steadily improving average occupancy rate (AOR) and ADR, the report added.

The outlook for Johor Bahru’s hospitality sector is positive due to the strong post-pandemic recovery, as evidenced by rising AOR and ADR, and coupled with redevelopment and enhancement projects tailored to meet evolving traveller expectations, according to the report.

“Johor Bahru remains a key tourist destination, with Singaporean visitors continuing to dominate international arrivals due to the city’s strategic location and seamless connectivity to Singapore.”

In Penang, the hospitality market is set for continued growth in 2025, supported by improved accessibility and rising tourist arrivals. “The addition of upcoming hotel developments, along with the resumption and expansion of direct local and intentional flights from key cities such as Guangzhou, Xiamen, Hong Kong, Dubai, Singapore, Bangkok, Phuket, Medan, Jakarta, Surabaya, Banda Aceh, Taipei, Ho Chi Minh City, Shanghai and Shenzhen are expected to enhance the state’s connectivity and strengthen its appeal to international travellers.”

The report said Penang is also well-positioned to maintain its position as Malaysia’s top destination for medical tourism. “In 1H2024, Penang contributed approximately 45% of the nation’s medical tourism revenue, attracting significant international patients, primarily from Indonesia and China. The state’s success in this sector is supported by its reputation for cost-effective, high-quality healthcare services, advanced medical technology, multilingual medical personnel and extended visa options, making it a preferred destination for medical tourists.”

In Sabah, the tourism market is expected to sustain its strong recovery, driven by a strategic focus on China as the primary international source market, the report said. “Growth will be further supported by the comprehensive upgrades at KKIA (Kota Kinabalu International Airport) and the introduction of new flight routes, enhancing the state’s connectivity. The hospitality sector is also set to benefit from growing interest by renowned international brands, with planned hotel developments reflecting continued confidence in Sabah’s tourism potential and its appeal as a prominent global travel destination.”

The East Coast’s appeal as a tourism destination is also reflected in several notable hotel openings by international hospitality brands in 2024. They include Fairfield by Marriott Kuala Besut and Perhentian Marriott Resort & Spa, both in Terengganu. “Malaysia is focusing on enhancing its port infrastructure to attract cruise tourism and expand its hospitality sector. Strategically located on the East Coast, Kuantan Port holds significant potential to become a key cruise destination. With the East Coast currently lacking dedicated cruise terminals, Kuantan Port is well-positioned for future development.

“By becoming a homeport, Malaysia could capture significant economic benefits by encouraging cruise passengers to utilise local airports, stay in nearby hotels pre- and post-cruise and contribute to local spending,” the report added.

The country’s overall residential property market is set for stable growth in 2025, driven by its recovery post-pandemic and supported by government initiatives to promote homeownership and address affordability challenges, the report said.

Government initiatives under Budget 2025, such as the Housing Credit Guarantee Scheme (SJKP), which offers tax relief of up to RM5,000 for first-time homebuyers purchasing properties priced between RM500,000 and RM750,000, and the Residensi Madani initiative under the Madani Economy framework, which aims to build 8,000 affordable housing units priced between RM150,000 and RM200,000 in the Federal Territories by 2027, are complemented by private sector campaigns such as green home financing; subsidies for memorandum of transfer (MOT), stamp duty and maintenance fees; early bird privileges; and cash rewards.

Kuala Lumpur’s prime residential market is further expected to remain stable, with gradual growth reflecting the broader resilience of the Asia-Pacific real estate sector, the report added. “The city offers investment opportunities for both locals and foreigners, with property prices among the most affordable in Asia. Progress in road and rail infrastructure is further promoting suburban township and transit-oriented developments along key transit lines, catering for shifting buyer and investor preferences.”

However, it noted that challenges remain due to global inflationary pressures, geopolitical tensions and economic instability, which may temper market sentiment and broader recovery efforts. “Despite these uncertainties, Malaysia’s strategic location, cultural richness and supportive government policies continue to enhance its real estate appeal, positioning the market for resilience and long-term growth.”

In Johor Bahru, the state’s high-rise residential sector remains optimistic with numerous project launches in the pipeline, according to the report. “Developments near the upcoming RTS Link station are particularly appealing due to enhanced connectivity, often commanding premium pricing.

“While land scarcity in the city centre may limit future projects, increased activity is expected in fringe areas. In Iskandar Puteri, improved market sentiment is driving new launches, further strengthening the region’s property market.”

Penang’s high-rise residential market is expected to maintain its upward momentum, supported by the state’s robust economy, a stable overnight policy rate set by Bank Negara Malaysia, continued labour market improvements and a moderate increase in median wages, the report said.

“Additionally, key infrastructure developments, including the commencement of construction for the Penang LRT Mutiara Line in 4Q2024 and ongoing PIA upgrade works, are anticipated to further boost the overall property market, enhancing connectivity and supporting demand in the high-rise residential segment.”

Over in East Malaysia, the residential market in Greater Kota Kinabalu is expected to see fewer new launches as many developments progress through multiple phases, the report noted. “High-rise residential projects are anticipated to grow steadily in mature or strategically located neighbourhoods, while the momentum for landed residential launches continues to build.”

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