This article first appeared in City & Country, The Edge Malaysia Weekly on February 9, 2026 - February 15, 2026

Malaysia’s property market in the second half of 2025 (2H2025) continued to show a widening divergence across sectors, with demand concentrated in assets aligned with infrastructure-readiness, clear economic purpose and national industrial and tourism strategies, while older and undifferentiated stock remained under pressure.

According to Knight Frank Malaysia’s Real Estate Highlights 2H2025, prime manufacturing facilities, Grade A offices and data centres remained demand-driven, while ageing offices and residential developments faced rising cost pressures and supply-demand imbalances.

Structural challenges persisted for ageing retail malls, although selective opportunities continued to emerge in tourism-led hospitality, experience-driven retail and policy-supported residential segments.

According to the report, industrial real estate continued to underpin market activity nationwide, supported by resilient domestic consumption, foreign investment inflows and Malaysia’s expanding free-trade network.

In the Klang Valley, industrial transaction volume and value rose 12.5% and 31.7% respectively in 9M2025. However, the ­average price per industrial transaction fell 7% year on year to roughly RM4.6 million, reflecting greater price sensitivity despite stronger activity levels.

Transaction momentum strengthened in districts where new and planned industrial parks are emerging, particularly Klang, Kuala Langat and Hulu Selangor. The introduction of these schemes stimulated demand and contributed significantly to higher transaction volumes. In contrast, Petaling’s growth continued to be driven by market depth, with active secondary transactions sustaining activity in this mature district.

Asking rents for detached industrial buildings and warehouses in the Klang Valley are expected to remain firm in 2H2025, especially for modern facilities with smart and automated features. Premium assets and well-equipped manufacturing facilities along key industrial corridors are expected to continue seeing upward pressure on rents.

Asking prices for vacant industrial plots in emerging and strategically located corridors trended upward, while prices in mature industrial hubs remained relatively stable.

The Klang Valley’s position as a logistics hub continued to be reinforced by strategic infrastructure developments such as the West Coast Expressway, the East Coast Rail Link and the Asean Express rail link, which are expected to reduce logistics costs, shorten transit times and enhance supply-chain efficiency.

Steady take-up of modern logistics and manufacturing facilities helped offset softer external demand, while Port Klang’s role as a regional gateway continued to underpin long-term demand for logistics and high-specification industrial assets.

Johor and Penang recorded strong industrial transaction values despite modest declines in volume. Johor’s total industrial transaction volume declined 0.5% y-o-y in 9M2025, while transaction value rose sharply by 30.5%. In Penang, transaction volume declined 12.3% y-o-y, although transaction value increased 6.4% to RM1.3 billion.

In Johor, activity remained concentrated in Johor Bahru and Kulai, supported by infrastructure development and the Johor-Singapore Special Economic Zone.

Penang’s industrial market remained resilient, underpinned by major initiatives, including the Penang South reclamation, expansion of Penang International Airport and new developments such as Batu Kawan Industrial Park 3 and Northern TechValley @ BKE.

Negeri Sembilan entered a stronger growth phase, supported by the Malaysia Vision Valley 2.0 master plan and the Malaysia Central Region Cluster Initiative Plan. In 9M2025, industrial transaction volume and value surged 19.7% and 129.2% respectively, with the average transaction price rising 91.4% to roughly RM4.3 million. Growth was largely driven by transaction activity in Seremban.

Sabah ranked among the top six states for approved manufacturing projects with foreign investment in 9M2025, accounting for 87.6% of total investment value. Transaction volume in selected districts rose 16.8%, although total transaction value softened by 2%, with Kota Kinabalu remaining the main activity hub.

Sarawak’s industrial sector remained resilient, rising 2.7% in transaction volume and 6.9% in transaction value. Key zones such as Samalaju and Sama Jaya continued to attract domestic and foreign investment, particularly in green industries and clean energy.

Similarly, data centre development remained active, particularly in the Klang Valley and Johor, driven by hyperscale and AI-related investments. The report noted, however, that investment decisions are becoming more selective as the sector approaches critical mass, with greater emphasis on energy availability, sustainability and measurable economic spillover effects.

The office sector remained bifurcated, the report said, with newer Grade A buildings outperforming older stock. Occupancy and rental performance proved more resilient in modern, ESG-compliant buildings, while ageing offices faced slower absorption and intensifying competition.

In the Klang Valley, cumulative office stock expanded to 120.6 million sq ft in 2H2025, following a full-year addition of 2.4 million sq ft. The development pipeline is expected to remain active in 2026, with around 2.8 million sq ft of new supply anticipated.

Occupancy rates improved in Kuala Lumpur city, although fringe areas moderated, following recent completions.

Average office rents across the Klang Valley recorded moderate gains in 2H2025, supported by selective demand for modern and well-located space. Kuala Lumpur city rents edged up to RM6.73 psf per month from RM6.69 psf per month in 1H2025, supported by continued interest in Grade A buildings with strong connectivity and quality specifications. Rental growth remained measured, however, owing to ongoing availability of secondary stock.

The Kuala Lumpur fringe recorded average rents of RM5.83 psf per month, up marginally from RM5.81 psf per month, partly reflecting the completion of Menara TNB Bangsar and sustained demand in established hubs such as Mid Valley and KL Eco City.

In Selangor, average rents increased to RM4.29 psf per month from RM4.24 psf per month, reflecting the addition of new large-scale developments such as Sunway Square Corporate Towers, while decentralised submarkets remained largely stable.

In Johor Bahru, cumulative office supply stood at roughly 7.3 million sq ft in 2H2025, representing a 0.7% y-o-y contraction. This was mainly due to the conversion of an ageing office building into a senior living facility, highlighting the potential for obsolete office stock to be repurposed.

Grade B offices continued to dominate the Johor Bahru market, accounting for 73% of total supply, while Grade A offices made up the remaining 27%. Demand for Grade A office space has been gradually improving, particularly among MNCs and Singapore-based firms seeking ESG-compliant offices.

With no new office supply in the pipeline as at 2H2025, the Johor Bahru market has entered a consolidation phase focused on absorbing existing stock.

In Penang, the office market is expected to remain stable, although new developments are increasingly shifting away from traditional districts such as George Town and Bayan Baru towards integrated projects including The Light City in Gelugor and Sunshine Central in Air Itam. Limited supply of purpose-built offices on Penang Island has also driven growing interest in strata office units among small and medium enterprises and investors.

In Sabah, office occupancy rates remained steady at 83.5% in 3Q2025. Asking gross rentals in the Kota Kinabalu CBD and southern fringe ranged between RM2.30 and RM5.50 psf per month.

Overall, corporate tenants and government agencies continued to pursue relocations and expansions in 2H2025, driven by branding considerations, compliance with safety and accessibility standards and workplace transformation initiatives. Office demand in Sarawak is expected to remain resilient, supported by public sector activity and the steady expansion of local and regional businesses.

The report noted that retail conditions stabilised in key urban markets, supported by steady spending on daily essentials and food and beverage. Newer lifestyle-led malls in the Klang Valley outperformed older centres, while landlords prioritised occupancy retention over rental growth amid incoming supply.

The Klang Valley retail market expanded to 73.5 million sq ft in 2H2025, following four mall openings. A further 1.4 million sq ft of retail net lettable area is expected to come onstream in 1H2026 from three new malls — Phase Two of Pavilion Damansara Heights; Ombak KLCC; and Coalfields Retail Park in Bandar Seri Coalfields.

In Johor and Penang, retail markets remained supported by tenant repositioning, brand expansions and expectations of stronger cross-border and tourist footfall. However, ageing malls lacking differentiation or experiential elements continued to face structural challenges.

As at 3Q2025, Johor’s total retail supply stood at roughly 25.6 million sq ft, with an overall occupancy rate of 73.7%. Johor Bahru accounted for 78.3% of total retail space, with occupancy rates at 73.3%.

Penang’s retail supply stayed stable at 21.1 million sq ft in 3Q2025. Occupancy rates on Penang Island improved marginally to 76.1%, whereas Seberang Perai saw a more notable increase to 63.8%, driven by stronger take-up in Butterworth and Simpang Ampat. Overall retail occupancy rates in the state rose slightly to 70.8%.

In Kota Kinabalu, total retail supply remained steady at roughly 6.1 million sq ft, with the overall occupancy rate at 77.5%. Prime malls are expected to see steady growth, supported by refreshed tenant mixes and the introduction of new brands.

Knight Frank Malaysia saw improving hospitality performance across most markets, supported by rising tourist arrivals and preparations for Visit Malaysia 2026. Malaysia’s hotel inventory expanded to 3,645 establishments with 297,226 rooms in 3Q2025, representing y-o-y growth of 2.5% in hotel count and 6.5% in room supply.

The pipeline includes 64 incoming hotels providing 12,830 rooms, alongside a further 36 planned hotels with 6,309 rooms.

Kuala Lumpur continued to attract interest in the upper-upscale and luxury segments, whereas Johor benefited from cross-border travel and improving connectivity. Penang maintained its position as Malaysia’s leading medical tourism destination and strengthened its MICE (Meetings, Incentives, Conferences and Exhibitions) offering with the opening of the Penang Waterfront Convention Centre in October 2025.

Sabah and Sarawak recorded improving occupancy and average room rates, supported by domestic tourism, infrastructure upgrades and growing interest in eco and cultural tourism.

The residential sector remained soft nationwide, with transaction volumes and values declining amid cautious buyer sentiment, affordability constraints and rising development costs, the property consultancy observed.

The report highlighted a growing mismatch between pricing, location and product type, particularly within the RM200,000-to-RM300,000 affordable housing segment and properties priced above RM1 million.

Residential properties continued to account for the bulk of market activity, representing 61.4% of all property transactions in 9M2025, broadly in line with the 61.8% in 9M2024.

Transaction volume declined by 2.8% y-o-y, however, and transaction value fell 0.3%, pointing to early signs of market softening amid global economic uncertainty and evolving financing conditions.

In the Klang Valley, transactions remained skewed towards lower-priced homes, while older high-rise developments faced mounting competition from newer projects. Johor’s residential market showed early signs of stabilisation, supported by improving absorption near the Rapid Transit System (RTS) Link, while Penang experienced more pronounced cooling in the high-rise segment.

In Sabah, new residential launches are expected to moderate, with many developments moving into subsequent phases. The focus remains on absorbing existing inventory, particularly in the high-rise segment.

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