KUALA LUMPUR: The growing presence of multinational companies (MNCs) setting up regional headquarters in Kuala Lumpur is driving increased competition in the office market, as reported by Knight Frank Malaysia.
Teh Young Khean, executive director of office strategy and solutions at Knight Frank, expressed optimism about the office market outlook, highlighting the continued expansion and new entries of MNCs, particularly in Kuala Lumpur.
Teh attributed this trend to the city's competitive real estate costs and welcoming business climate.
He noted that, despite high vacancy rates in the Asia-Pacific region, Kuala Lumpur is demonstrating steady quarter-on-quarter improvements in both occupancy and rental rates for prime-grade buildings.
Knight Frank's Asia-Pacific Prime Office Rental Index for the third quarter of 2024 (3Q 2024) suggests that prime office rents across the region are stabilising, with only a minor 0.1 percent decrease quarter-on-quarter, hinting at a potential market bottoming out.
This trend is supported by robust demand in Indian markets, fuelled by offshoring and domestic business growth.
The report also indicated that 16 of the 23 monitored cities showed stable or increasing rents year-on-year, up from 15 in the previous quarter, with an annual rent decline of 2.5 percent—an improvement from the 2.8 percent drop in 2Q 2024.
Tim Armstrong, Knight Frank's global head of occupier strategy and solutions, observed that global economic uncertainties are prompting companies to adopt cautious spending, focusing on office renewals and consolidations.
"When relocations do occur, companies are opting for smaller, higher-density spaces, aligning with cost mitigation needs and the growing acceptance of hybrid work models.
While he expects an eventual improvement in business sentiment as the U.S. Federal Reserve adjusts its monetary policy, he anticipates that demand will remain measured, with an emphasis on optimising space.
Armstrong warned that as regional office development slows, any surge in leasing activity could quickly tighten the availability of prime spaces, potentially intensifying the trend of "flight-to-quality" as tenants seek to enhance their portfolios in a more competitive market.
Dr. Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat Malaysia Bhd, highlighted Malaysia's strategic location and well-developed public amenities as key factors attracting MNCs.
He also emphasised the country's peaceful environment and widespread English proficiency, making it easier for foreign companies to operate.
Afzanizam noted, however, that rising demand could lead to higher rental costs in Kuala Lumpur.
He suggested that Flexible Working Arrangements (FWA) could help companies manage costs by reducing the need for larger office spaces.
Kuala Lumpur's rental rates remain highly competitive, especially compared to places like Singapore, he added.
Sr. Samuel Tan, founder and chief executive officer of Olive Tree Property Consultants, observed a recent increase in MNCs, especially from industrial sectors, establishing a presence in Malaysia.
"We're seeing more high-tech industries like advanced electronics, semiconductors, and renewable energy," Tan told Business Times.
He noted that ongoing U.S.-China trade tensions have been advantageous for Malaysia.
"As a neutral trading country, we're favorably viewed by both sides. Our transparent legal framework and skilled workforce are also major assets," he said.
Tan also said that Malaysia's natural resources offer significant opportunities for entrepreneurs and investors.
He emphasised that ASEAN nations, particularly Malaysia, are positioned to benefit from global geopolitical shifts.
"While lower operational costs are appealing, we need to create a sustainable, business-friendly environment. Malaysia should establish its niche areas. Renewable energy and smart logistics, for example, are promising sectors."
Tan also said that rental rates for industrial properties have risen, reflecting improved specifications.
"Modern purpose-built offices with green and smart features are attracting higher rates," he added.