Kuala Lumpur's office rental costs expected to remain unchanged amidst challenging market conditions

On a whole, prime office rents in APAC fell just 0.1% on a quarterly basis, supported by the growth in Indian markets and the overall challenging conditions the market is still facing.

According to Knight Frank’s Asia-Pacific Office Market report of Q3 2024, 16 out of 23 monitored cities globally are experiencing stable or increasing rents year-on-year with rents in Bangkok now seeing a rise. Meanwhile, Kuala Lumpur has fallen under the “Unchanged” category.

The report revealed that prime rents in the region fell just 0.1% on a quarter-on-quarter basis, indicating that rents could be bottoming out. This is supported by the growth in Indian markets and the overall challenging conditions the market is still facing.

On a year-on-year basis, rents fell 2.5%, moderating from the 2.8% drop in Q2 2024. 

Office vacancies in Southeast Asia’s emerging markets fell 0.6% while rental prices rose across most markets as landlords raised rates for offices in prime spaces which is driven by a flight-to-quality trend.

Regional reports

Australia

Prime rents in Australia’s largest office markets rose by 3% in Q3 2024. This is largely driven by its resource-rich markets. Rents in Brisbane rose to 11% year-on-year due to high demand and lack of imminent development.

A flight-to-quality trend resulted in a diverge in Sydney’s rental growth, causing a rise in incentives. At the same time, prime office rents in Auckland remain stagnant for its fourth consecutive quarter as leasing and fundamentals have been softening.

Vacancy rates clocked over 13% due to an influx of new supply of H124 and sub-lease opportunities, Knight Frank reports.

Southeast Asia

Vacancies in emerging markets fell 0.6 percentage points quarter-on-quarter to 24%, driven by reduced availabilities in Ho Chi Minh City, Jakarta, and Kuala Lumpur. 

Landlords in Bangkok remain reluctant to lower rental rates, recognising the demand for offices in prime spaces remain as a key driver of relocations. Instead, incentives are offered to secure these deals.

Over in Singapore, leasing momentum has slowed down as companies remain conservative on capex and suspension plans.

East Asia

Mainland China’s first-tier cities, namely, Beijing, Shanghai, Guangzhou, and Shenzhen, continue to face a blow in the decline of rents due to the country’s lackluster economy.

With US law firms reportedly shrinking their office footprints amid ongoing trade tensions and some relocating out of the core Central Business District area, landlords are adopting more aggressive leasing strategies such as dangling incentives despite a supply glut. Rents in Hong Kong SAR also continue to see a decline due to weak leasing momentum.

Although the government has announced measures to stimulate the economy, the current supply-demand imbalance is expected to keep vacancy rates at its high for a protracted period.

Overall, office spaces are expected to see a decrease in vacancies despite rising rental rates as the global market remains uncertain.

Commenting on the findings, Knight Frank’s Global Head of Occupier Strategy and Solutions Tim Armstrong said that the global economic uncertainties have led to a more cautious capital expenditure strategies among occupiers.

"While the business sentiment may improve as the Fed eases monetary policy, demand will continue to be tempered by prudent spending and workplace strategies focused on maximising space utilisation," he added.

READ MORE: How Asian cities rank on the Smart City Index 2024