Opportunities in retrofitting office space in Kuala Lumpur

Revitalising projects in Greater Kuala Lumpur's office market will attract tenants and inject new life into aging buildings.

January 23, 2024

In 2024, the office space market in Greater Kuala Lumpur faces the challenge of an ageing inventory. It is estimated that over 56% of the total office space in the area, amounting to approximately 74 million square feet, is over 15 years old, regardless of green certification status. Moreover, the current market's ability to meet the growing demand for modern office space is also hindered by the fact that only 30% of the overall KL office market has achieved green certification. This presents a significant gap in the market, as tenants increasingly seek environmentally certified buildings.

In recent quarters, the office market in Greater Kuala Lumpur experienced a positive demand trend, which led to a decrease in vacancy rates and an increase in occupied stock for both green-certified and non-green-certified office spaces. However, it is noteworthy that green-certified office buildings outperformed their non-certified counterparts. In Q3 and Q4 2023, the average vacancy rate of green-certified buildings witnessed a significant decrease of 5 percentage points, indicating a strong market demand and tenant preference for sustainable buildings.

Figure 1: Green-certified office space in Greater Kuala Lumpur

Source: JLL Research & REIS

Figure 2: Non green-certified office space in Greater Kuala Lumpur

Source: JLL Research & REIS

In comparison, the average aacancy rate of non-green-certified buildings saw a more modest improvement of 1%. This highlights the growing awareness and prioritisation of sustainability and building quality by tenants in the office market. Additionally, green-certified buildings can command higher rental rates due to their recognised added value and energy-efficient features, while non-certified buildings may experience rental rate compression.

Many investors are taking a closer look at the ageing office stock in Greater Kuala Lumpur. In order to uncover the potential opportunities, it is essential to cover crucial aspects including regulations, building condition, location assessment and market analysis. As such, building owners can identify market needs, understand the viability of refurbishment or repurposing projects, as well as develop effective marketing strategies. By aligning refurbishment projects with market demands, building owners can better position their properties and maximise their potential within Greater Kuala Lumpur's evolving office space market.

In conclusion, refurbishing buildings in the office market of Greater Kuala Lumpur presents an enticing opportunity for building owners. The combination of ageing buildings that lack green certification and the rising demand for newer, green-certified buildings with superior facilities has led to increased rental rates for sustainable spaces.

Furthermore, the evolving tenant requirements for technology, comfort, and sustainability make refurbishment essential to attract and retain tenants. It is worth noting that while there is a 10% supply of new office buildings with green certification in the pipeline, this influx of new spaces may intensify competition for older buildings. Therefore, undertaking retrofitting projects and achieving green certification becomes even more crucial in revitalising the office space market in Greater Kuala Lumpur.

By injecting fresh vitality and incorporating sustainable practices, building owners can improve the marketability of ageing buildings and effectively compete in attracting tenants.