Kuala Lumpur’s office market is approaching a critical inflection point. With nearly six million square feet of new office space under construction, the capital city is facing renewed pressure on occupancy, rents and asset relevance. According to a recent outlook by Rahim & Co, the next phase of supply could further test an already competitive market, particularly for ageing buildings that struggle to meet modern occupier expectations.
For investors, landlords and occupiers, this is no longer just a cyclical oversupply story. It is increasingly about relevance, quality and strategic positioning in a market that is clearly bifurcating.
A market still digesting past supply
Kuala Lumpur continues to hold the largest concentration of purpose-built office space in Malaysia. As at the first half of 2025, total supply reached close to 110 million square feet, with occupancy at just over 72%. This leaves more than 30 million square feet of vacant space, a significant figure that highlights the depth of the challenge.
Nationally, office occupancy slipped to 77.8% by mid-2025 before edging up slightly to 78% by September. While this marginal improvement offers some reassurance, it does little to offset concerns about incoming supply, particularly in the city centre where most of the new developments are located.
The eight office buildings currently under construction will add nearly six million square feet to the market. In an environment where vacancy is already elevated, new supply inevitably intensifies competition.
New hubs are reshaping demand
One of the most important structural shifts in Kuala Lumpur’s office market is the rise of new, high-profile office hubs. Districts such as Tun Razak Exchange, Merdeka 118, IOI City Towers and Pavilion Damansara Heights have reset occupier expectations.
These developments offer features that older buildings struggle to match: ESG certifications, efficient floor plates, advanced building systems and direct access to public transport. As multinational companies and regional offices raise their standards, demand is gravitating toward these premium, future-ready locations.
The result is a growing divide. Newer, well-located assets continue to attract tenants, while older buildings face rising vacancy and downward pressure on rents.
Ageing stock under strain
Many office buildings constructed in the early 2000s were designed for a different era of work. Today, they often fall short in terms of sustainability performance, digital infrastructure and workplace flexibility.
This mismatch has contributed to what industry observers increasingly describe as “obsolete space”. These buildings are not necessarily physically dilapidated, but they are functionally outdated. Without intervention, they risk long-term underutilisation.
Rahim & Co has reiterated the need for repurposing or asset enhancement strategies as a way to address this imbalance. Simply waiting for demand to return may no longer be a viable option for owners of older stock.
Repurposing becomes a strategic imperative
For investors, the conversation is shifting from whether to reposition assets to how quickly it can be done. Options range from upgrading building systems and improving sustainability credentials to more radical conversions into alternative uses such as co-working, education, healthcare or even residential components where zoning allows.
These strategies require capital, but they may be essential to preserve value. In a market where occupiers are increasingly selective, relevance is becoming the primary driver of performance.
This trend also reflects a broader global pattern. Cities worldwide are grappling with surplus office space as work patterns evolve. Kuala Lumpur is not unique in this regard, but its scale of supply makes proactive action more urgent.
ESG and connectivity drive leasing decisions
Demand that does exist in Kuala Lumpur is highly concentrated. Premium, ESG-certified buildings with strong transit connectivity continue to outperform. This is partly supported by international interest facilitated by agencies such as InvestKL and Malaysian Investment Development Authority, which help attract multinational companies to the city.
These occupiers are not just looking for space. They are looking for buildings that align with corporate sustainability goals, employee well-being and long-term operational efficiency. As a result, office assets that tick these boxes are better insulated from broader market weakness.
For investors, this reinforces the idea that not all office space is created equal. Asset selection and positioning matter more than ever.
Selangor mirrors similar challenges
The pressure is not confined to the capital. In neighbouring Selangor, total office supply reached over 50 million square feet in the first half of 2025, with average occupancy at 72.5%. This leaves nearly 14 million square feet vacant.
Petaling Jaya accounts for the largest share of Selangor’s office stock, with about 20 million square feet across 90 buildings. One new office development under construction will add more than 350,000 square feet to the market, further heightening competition.
Like Kuala Lumpur, Selangor’s office demand is gravitating toward newer, better-located assets, leaving secondary buildings under pressure.
What this means for investors
For office investors, the next few years will likely be defined by divergence rather than uniform recovery. Prime assets in strategic locations may continue to see stable demand and gradual rental growth. Secondary and ageing buildings, however, could face prolonged vacancy without intervention.
This environment favours active asset management. Passive holding strategies that worked in previous cycles may no longer deliver acceptable returns. Investors will need to assess whether to inject capital, reposition assets or exit underperforming properties.
At the same time, opportunities may emerge. Distressed or underperforming assets could be acquired at attractive pricing, provided there is a clear strategy to enhance relevance and align with market demand.
Looking ahead
The incoming wave of office supply in Kuala Lumpur is not necessarily a crisis, but it is a catalyst. It accelerates trends that were already underway: the flight to quality, the importance of ESG and the need for adaptive reuse.
For the capital city, the challenge lies in managing this transition without allowing large swathes of space to remain idle. For investors, the message is equally clear. The office market is no longer about scale alone. It is about strategy.
As Kuala Lumpur continues to position itself as a regional business hub, the offices that succeed will be those that evolve with occupier needs and economic realities. In this market, relevance is not optional. It is the difference between resilience and obsolescence.
