KUALA LUMPUR: Industry players are optimistic about the real estate investment market in 2025, driven by robust foreign direct investment (FDI) inflows and a resilient economic environment.
According to the Malaysia Commercial Real Estate Investment Sentiment Survey (CREISS) 2025, 91 per cent of respondents expressed optimism about the country's commercial real estate market this year, with 34 per cent planning to increase their investments.
The favourable FDI outlook, buoyed by RM254.7 billion in approved investments during the first nine months of 2024—a 10.7 per cent increase from 2023—further supports this sentiment, said Knight Frank Malaysia.
Malaysia's property market continued its upward trend in 2024, recording 311,211 transactions valued at RM163 billion in the first nine months of the year, compared to 293,073 transactions worth RM142.5 billion in the same period of 2023. In a yearly comparison, the sales volume and corresponding sales value increased by 6.2 per cent and 14.4 per cent respectively.
The commercial sub-sector witnessed significant expansion, with 33,820 properties worth RM36.2 billion transacted during the first nine months of 2024. This represented annual growth rates of 16.6 per cent in volume and 32.7 per cent in value.
Knight Frank Malaysia reported that the performance of the investment real estate market aligned with the expectations of over half of survey respondents for 2024.
For 22 per cent of respondents, the market exceeded expectations, while another 22 per cent felt it underperformed, and 3.0 per cent believed it significantly underperformed.
Key challenges cited include rising construction costs, increased building vacancy rates, and the persistent high-interest-rate environment.
The retail segment, meanwhile, faced additional hurdles such as brand boycotts, which contributed to declining sales, reduced rents, and, in severe cases, store closures.
Interest rates and market challenges
Despite Bank Negara Malaysia maintaining the overnight policy rate (OPR) at 3.00 per cent throughout 2024—following a 25 basis points hike in March 2023—survey respondents highlighted financing difficulties, inflationary pressures, and rising interest rates as significant challenges.
Knight Frank cautioned that 2025 may bring multiple risks, including increased costs, shifting tenant demands, and evolving government regulations, posing concerns for the commercial real estate investment landscape.
Nevertheless, it said Malaysia's economic outlook is set to remain positive, driven by solid GDP growth of 5.2 per cent year-on-year in the first nine months of 2024 and a strengthening labour market with an unemployment rate of 3.3 per cent during the same period.
Key investment hotspots: Klang Valley and Johor
Knight Frank identified Klang Valley and Johor as the leading regions for commercial real estate investments in 2025.
Klang Valley remains the nation's business and economic hub, while Johor's proximity to Singapore bolsters its attractiveness for data centres and industrial/logistics projects.
The Johor-Singapore Special Economic Zone (JS-SEZ) and increasing land acquisitions for data centres underscore Johor's rising prominence, the firm said.
Promising sectors for 2025: Data centres and industrial/logistics
Data centres and industrial/logistics are expected to remain the most resilient and promising sectors in 2025, driven by surging demand for cloud computing, e-commerce expansion, and Malaysia's strategic role as a regional trade hub.
Respondents predict these sub-sectors will outperform, supported by Johor's growing data centre developments and the continued industrial expansion in Klang Valley.
Keith Ooi, group managing director of Knight Frank Malaysia, noted that respondents were optimistic about the data centre and industrial/logistics sectors.
Meanwhile, office, hospitality, and retail sub-sectors are expected to remain stable in terms of capital values, rental yields, and occupancy.
The rental and occupancy levels in the retail sub-sector, as well as capital values in the hospitality sub-sector, are anticipated to improve.
Future-proof sustainable developments are also expected to gain a competitive edge, despite requiring higher initial capital investment.
The data centre and industrial/logistics sectors are poised to drive Malaysia's commercial property market forward, with sustainability and tenant-driven demand shaping the future, Ooi concluded.
In 2024, 48 per cent of respondents expanded their portfolios in the industrial/logistics sector, driven by government policies like the New Industrial Master Plan 2030 (NIMP 2030) and the National Energy Transition Roadmap (NETR), while 39 per cent maintained theirs.
Rail developments like MRT and LRT spurred transit-orientated growth, with 44 per cent expanding portfolios.
In hospitality and office sectors, most maintained portfolios (77 per cent and 57 per cent), though 27 per cent downsized office assets.
Retail saw mixed activity: 46 per cent maintained, 36 per cent expanded, 11 per cent downsized, and 7.0 per cent exited, with sales projected to grow 3.9 per cent amid economic resilience and a strong labour market.