By Joseph Wong
The second half of 2025 (2H 2025) marks a watershed moment for Malaysia’s property landscape, indicating a shift away from speculative volume toward a disciplined framework centred on capital discipline, asset purpose and structural alignment. This shift, highlighted in Knight Frank Malaysia’s Real Estate Highlights (REH) 2H2025 report, marks a clear inflexion point for the nation's property landscape. While demand remains broadly intact, outcomes have become increasingly fragmented, necessitating a total realignment of market strategies heading into 2026.
Drawing on market performance over the final six months of 2025, it is evident that headline activity no longer provides a complete picture of underlying dynamics. Instead, performance is being driven by pockets of resilient demand and structural factors that underpin asset outperformance. In this new environment, quality, location and specific purpose have displaced volume as the primary drivers of growth.
Macro signals: Clarity over comfort
The macro conditions of late 2025 point to a more constrained operating environment. Supportive fundamentals are no longer a sufficient safety net for poor execution or weak alignment. The nation is entering a phase where the market is no longer moving in a single direction. Instead, a clear separation has emerged between assets that meet structural demand and those that do not.
“The market is no longer moving in a single direction. Over the past six months, we’ve seen a clear separation between assets that are aligned with structural demand and those that are not. In this environment, performance is determined by alignment, discipline and execution, rather than momentum alone,” said Knight Frank Malaysia group managing director Keith Ooi.
In the industrial sector, demand in Malaysia remains a pillar of the market but it is increasingly shaped by infrastructure readiness and operational efficiency. The implementation of US tariff measures in 2025 disrupted regional trade flows, creating a temporary dampening of activity in export-oriented manufacturing. However, domestic consumption and export diversification have acted as a buffer.
In Klang Valley, the sector remains the anchor for logistics and advanced manufacturing, with demand focused on high-value sectors and modern facilities near Port Klang.
In Johor, sustained interest continues via cross-border integration under the Johor–Singapore Special Economic Zone (JS-SEZ).
In the northern region, while there is a decline in transaction volume, Penang saw a 6.4% increase in transaction value due to land scarcity. This has driven a strategic spillover into Kulim, where cost-competitive parcels offer a viable expansion route while maintaining proximity to Penang’s electrical and electronics (E&E) ecosystem.
In East Malaysia, Sabah and Sarawak are emerging as increasingly differentiated industrial markets. In Sabah, foreign-backed manufacturing investments are shaping early-stage growth while Sarawak’s industrial positioning is being reinforced by clean energy-led strategies and downstream industrial development.
"Heightened trade costs have reinforced occupier selectivity," land and industrial solutions senior executive director Allan Sim noted, pointing out that investors are no longer just looking for space but looking for operational certainty, power capacity and connectivity.
On the data centre front, it has moved from investment announcement to the delivery phase. Growth is now tied to the ability to secure critical resources and navigate governance frameworks.
“As the sector moves from commitments to delivery, project progress is increasingly shaped by execution factors such as contract timelines, customised customer requirements, the track record of operators and owners, as well as regulatory processes and available infrastructure capacity. Despite this, data centres remain a compelling alternative asset class for investors and developers,” said valuation and advisory executive director Justin Chee.
Office market: Shift to quality continues
The office market in 2H 2025 reinforced the prioritisation of quality and flexibility over the scale trend. A two-tier market has emerged, particularly in the Klang Valley, where newer, ESG-compliant Grade A buildings are absorbed quickly while older stock faces mounting pressure to reposition.
Office strategy and solutions senior executive director Teh Young Khean emphasised that leasing decisions are increasingly centred on efficiency. This trend is mirrored in Johor and Penang, where a limited new supply of premium space has kept occupancy stable for high-quality assets.
Retail performance remained firmer than anticipated, anchored by daily-needs retail and experience-led formats. However, the completion of new malls in the Klang Valley has intensified competition. In response, landlords have adopted a defensive stance, prioritising tenant retention and mix optimisation over headline rental growth.
“In overlapping catchments, differentiation is becoming more challenging,” notes retail management and consultancy director Yuen May Chee. Success in retail is now less about presence and more about the specific format's ability to drive consistent footfall.
The hospitality sector is transitioning toward a tourism-led growth cycle in anticipation of Visit Malaysia 2026 (VMY 2026). Improving travel flows is already influencing room inventory planning and pricing strategies.
Capital markets executive director James Buckley said VMY 2026 provides a powerful demand driver that will benefit investment performance across key markets like Kuala Lumpur, Johor and Penang. Growth is increasingly supported by policy direction and event-driven travel rather than speculative expansion.
Residential: A discerning buyer base
The residential market cooled modestly in late 2025 as buyers became more selective due to affordability pressures and a high supply pipeline. However, overhang levels are improving where pricing and product type are well-aligned with buyer needs.
Infrastructure remains the primary catalyst. Projects like the RTS Link in Johor and major rail corridors in the Klang Valley continue to drive housing demand. Research and consultancy executive director Judy Ong noted that the market is self-correcting. Developers are navigating this by offering right-sized products and flexible pricing, reflecting the broader industry shift toward structural alignment and delivery certainty, she said.
The patterns of 2H 2025 suggest that reliance on cyclical momentum is no longer a viable strategy. As the market realigns for 2026, the divergence between high-performing and underperforming assets will only widen.
The 65-page REH 2H2025 report makes it clear. The central challenge facing the market today is no longer whether demand exists but whether development and investment strategies are aligned with the signals that matter most.
This article was first published in StarBiz 7.
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