Kuala Lumpur Q2 2025 Market Dynamics Report

KUALA LUMPUR, July 23, 2025 – JLL Malaysia's Q2 2025 market research reveals strengthening performance across Kuala Lumpur's commercial real estate sectors, with the office market showing notable improvement through reduced vacancies and positive absorption.

KL's office market demonstrated continued resilience with positive absorption across all submarkets. KL City recorded 231,392 sq ft of net absorption, contributing to a significant vacancy reduction from 23.6% in Q2 2024 to 19.2% in Q2 2025.

"Financial and technology sectors are driving office demand in Kuala Lumpur, with businesses strategically upgrading to newer, higher-quality buildings that better support modern operations," said Yulia Nikulicheva, Head of Research & Consultancy at JLL Malaysia.

The quarter saw one significant completion with Lendlease Campus @ TRX adding 200,000 sq ft of LEED Gold standard workspace. Notable upcoming developments like The Capitol and UOA Duo Tower have accelerated their timelines, now targeting 2026 completion instead of 2027.

The industrial sector experienced robust growth with the completion of approximately 2 million square feet of Grade A warehouse space, located in Pulau Indah, Shah Alam and Kota Elmina, to meet the market demand for these locations.

In Q2 2025, an impressive 2.1 million sq ft of new supply entered the market. Despite this substantial addition, robust demand persisted, driving vacancy rates down significantly from 3.9% in the previous quarter to just 2.0%. Demand is primarily fuelled by the automotive sector, electronics and electrical industries, and third-party logistics providers.

Strong demand continues for factory space in key hotspots like Klang Valley, Johor and Penang, with occupiers actively seeking quality industrial assets in these established manufacturing hubs. However, due to tariff uncertainty, investor sentiment has been affected by a fair bit, with some potential buyers adopting a wait-and-see approach before committing to major industrial acquisitions in these markets.

"The logistic and industrial market's strength is reflected in stable rental rates and increasing capital values, which rose 3.9% year-over-year, reinforcing the sector's position as a preferred defensive asset for institutional investors," added Nikulicheva.

Malaysia's data centre market continues to show healthy growth while entering a strategic consolidation phase. With 638 MW of completed capacity, 1,300 MW under construction, and a future pipeline exceeding 3,450 MW, the country is already a major regional player in the data centre space. This growth trajectory comes at a time when the market is naturally maturing and showing signs of consolidation after a period of rapid expansion for the past few years.

The market is evolving toward more selective investment approaches amid increased complexities in the development landscape. Rising costs across the development chain, stricter regulations, and approval processes have led to a shift toward strategic partnerships rather than outright land purchases. This market maturation is naturally favouring quality over quantity, allowing well-planned, sustainable developments to move forward while ensuring long-term market stability.

"Malaysia's data centre market is experiencing a strategic consolidation phase with 638MW of completed capacity, 1,300MW under construction, and over 3,450MW in the pipeline," said Yulia Nikulicheva, Head of Research & Consultancy at JLL Malaysia.

Kuala Lumpur's retail sector showed measured improvement with vacancy rates decreasing to 15.71% from 16.71% a year earlier. The quarter saw no new mall completions, while tenant demand continued to be robust.

F&B and fashion retailers remained active, with notable new entries including Benihana, Tous Les Jours, and Cabbeen. Despite some high-profile closures like Don Don Donki and Spotlight, demand has been stabilised by entertainment & leisure, and co-working spaces.

City Centre submarket anticipates two landmark malls in the next 12 months: Ombak KLCC in the KLCC development precinct, and 118 Mall at the foot of Merdeka 118 tower. Meanwhile, developers in Suburban submarket are focusing on smaller neighbourhood malls within new townships, serving as community hubs for residents who live in the immediate surrounding area. This strategy allows them to achieve strong occupancy rates by the opening. Hextar World at Empire City will be Greater Kuala Lumpur's largest retail addition in the coming year, with recently announced high precommitments from major anchor tenants, confirming robust demand from retailers. Another Suburban submarket mall coming into the market is the KLGCC Mall with a net lettable area of about 240,000 sq ft. KLGCC Mall will be Sime Darby Property’s third wholly-owned mall, following the successes of KL East Mall and Elmina Lakeside Mall.

“Another interesting retail mall coming into the market towards the end of 2025 is the Sunway Square Mall with about 300,000 sq ft of retail space within four floors. Expected anchor tenants within the mall include TGV Cinemas, Village Grocer, The Library by BookXcess and others” said Sr Jamie Tan, Managing Director of JLL Malaysia.

The residential market in Klang Valley experienced a slight consolidation in market activity with both transaction volume and value decreasing in Q1 2025 compared to the Q1 2024. However, the high-end residential segment for the country observed a notable uptick with both transaction volume and value increasing by 6.6% and 5.6% respectively. “This suggests that demand from high-income earners in Malaysia remains resilient, with buyers and investors actively seeking high-end quality homes in prime locations within major cities,” said Jamie.

Residential overhang remains at healthy levels with recorded rates of 19% – 23% for Q1 2025. “Compared to the peak overhang experienced during the Covid years of up to 63%, the current overhang indicate that the market has made progress in absorbing unsold units and that developers have been more cautious in their new launches” added Jamie.

In Klang Valley, average prices of serviced apartments and condominiums rose by 1.8% and 2.3% respectively, closely matching the current inflation rate. Double-storey terrace houses, the most common type of landed residential property, recorded a price increase of 1.4% only. “These figures indicate that prices are holding steady, with a moderate upward trend reflecting ongoing demand in key urban areas despite concerns of oversupply,” said Jamie.

“We will continue to see increasing market activity in the residential market due to the recent cut of 25 basis points to the Overnight Policy Rate (OPR) and the various incentive packages offered by developers for their residential project launches” added Jamie.

The prime residential market added 1,443 luxury units with the completion of Isola KLCC, The Conlay, and Bangsar Hill Park. Despite the new supply, developers generally maintained cautious positions with no significant new launches amid rising construction costs.

International demand remained strong, with investors from the Middle East, Asia Pacific, and Europe showing particular interest. Notably, Malaysia climbed to fourth place globally for Chinese luxury property investors, with Kuala Lumpur offering exceptional value at approximately USD 240 per square foot—87% cheaper than comparable properties in Singapore.