Flight to quality widens gap between old and new KL offices, CBRE | WTW warns

A growing performance rift between ageing and modern office buildings in Kuala Lumpur is creating an existential dilemma for older stock, according to CBRE | WTW's Malaysia Real Estate Outlook 2026 report. Occupancy in non-prime purpose-built offices slipped from 82.8% in 2019 to 78.4% in 2025, whil

The contrast in Kuala Lumpur’s office skyline is becoming impossible to ignore: sleek, environmentally-certified towers connected by urban transit networks rise beside ageing commercial blocks with design and functionality that struggle to meet the expectations of modern business occupiers.

Driven by a rising tech-centric and socially-conscious global business environment, Malaysia’s office market has embraced a new generation of developments built around sustainability, technology and employee experience. Yet, as the market moves forward, older buildings are increasingly being left behind.

The divide between “old” and “new” is not just evidenced in rental rates. It is also reflected in diminishing demand, shrinking occupancy levels and asset values. This ultimately raises uncomfortable questions about the long-term viability, relevance and survival of ageing office buildings in a rapidly advancing nation.

A further influx of new Grade A offices in the country over the 2026–2027 period adds to this existential crisis, placing further pressure on previous-era offices that are already grappling with competitiveness in a landscape that offers roughly 120 million sq ft of existing net lettable space.

Concerned that lopsided preference for new office space might eventuate into large volumes of unused space, the Finance Ministry, under Budget 2026, introduced tax incentives for the adaptive reuse of office buildings, while the Federal Territories (FT) Ministry announced its RE_NEW Policy to reduce the cost of such projects in capital districts, while fast-tracking approvals and encouraging sustainable targets.

Highlighting this ongoing dilemma in its Malaysia Real Estate Outlook 2026 report, real estate services and consultancy firm CBRE | WTW Valuation and Advisory Sdn Bhd pointed out that the Klang Valley will likely see an increasing number of refurbished or repurposed office buildings moving forward. “Overall, older offices should not be viewed as obsolete by default, but they cannot remain passive. Owners need to assess the cost of doing nothing against the value that can be protected or gained from upgrading. If no action is taken, the building may gradually lose tenants, rental income and market value,” CBRE | WTW managing director Lim Chai Yin told EdgeProp.

“With the right rejuvenation and repositioning, [older office buildings] have a better chance of staying relevant and protecting longterm value,” she added.

CBRE | WTW’s recent findings show demand for older, non-prime offices in the Klang Valley continues to decline as the trend shows tenants are favouring modern, energy-efficient spaces in well-connected locations in newer prime office buildings. By comparison, occupancy rates for prime purpose-built offices (PBOs) rose from 75.6% in 2019 to 81.4% in 2025, with a slight dip expected this year due to saturation created by incoming supply. In contrast, PBOs in non-prime areas have been on a declining trend since 2019, slipping from a high of 82.8% seven years ago to 78.4% last year, with a further dip expected in 2026.

Lim noted that this indicates a clear flight to quality. Tenant demand is shifting towards newer or upgraded office spaces, as occupiers are no longer driven by rental cost alone. Many businesses are placing greater emphasis on building quality, efficiency, ESG credentials, connectivity, amenities, technology readiness and the overall workplace experience.

Similarly, Cushman & Wakefield’s KL Office Market 1Q2026 report noted that the overall vacancy rate in KL is 30.02%. Net absorption has also been on a declining trend of -435,270 sq ft quarter-on-quarter, showing more space is being vacated than leased. The report also found that in the KL central business district (CBD), where a larger volume of new offices is located (60.55 sq ft million inventory), average rents were at RM7.21 psf and vacancy was at 27.8%. Meanwhile in the KL fringe, with a higher concentration of older offices, vacancy was at 33.5% despite a lower average rent of RM6.61 psf.

“The challenge facing the office sector today is not merely one of oversupply. Increasingly, we are seeing an oversupply of certain types of office space and a shortage of future-ready assets,” said Zerin Properties CEO Previn Singhe. “As a result, buildings are now competing not only on location and rental rates, but also on technological capability, sustainability credentials, flexibility, connectivity and user experience.”