ESG principles will continue to drive demand in office segment: JLL

KUALA LUMPUR: Environmental, social, and governance (ESG) principles will remain a key driver of demand for office space, mainly in Greater Kuala Lumpur, said JLL Appraisal and Property Services Sdn Bhd.

Its managing director, Jamie Tan said the office segment experienced a surge in demand as companies increasingly relocated to modern and environmentally sustainable spaces that align with ESG principles.

"ESG is shaping the market. This shift towards sustainable and compliant spaces was driven by a growing emphasis on corporate responsibility and the need to attract and retain top talent," he said at JLL's fourth quarter (4Q) 2023 Greater Kuala Lumpur Property Market Monitor here today.

Tan also said that in 3Q and 4Q of 2023, buildings with green-certified offices were performing much better, had lower vacancy rates and experienced higher occupancy.

It witnessed a significant decrease in vacancy rates by 500 basis points, indicating strong market demand and tenant preference for sustainable buildings, compared with non-green-certified buildings which saw a modest movement of 100 basis points in vacancy rates.

He noted that office, logistics, and data centre segments would remain robust in the next 12 months, as ongoing shifts towards new supply chain principles and wider adoption of technology and sustainability would continue to fuel the growth of the segments.

"Consequently, we anticipate further rental growth for high-quality assets situated in hotspot locations that meet tenants' expectations regarding efficiency and sustainability.

"These assets will command a premium in the market due to their attractiveness amenities and ability to cater to the evolving needs of occupiers such as green features," said Tan.

Several notable developments are expected to reach completion this year which include the Lendlease office at TRX, PNB Project 1194, and CT 1@ Pavilion Damansara Heights.

For the logistics segment, the segment is expected to have about 10.5 million square feet (sq ft) of warehouse space in the next three years.

Tan said the changes in the supply chain and implementation of the China Plus One concept continue to drive the demand for high-quality logistics space.

Four warehouses are expected to be completed this year, namely Axis Mega Distribution Centre Phase 2, E-Metro Logistics Park Metrohub 1, E-Metro Logistics Park Metrohub 2 and ALP Bukit Raja Omega, which would contribute 3.68 million sq ft in total.

As for the data centres segment, he said growth is anticipated to continue at a faster pace and it is projected to reach around 750 megawatts (MW) by the end of 2025 from the current supply of over 200 MW.

"If the proposed data centre projects are realised, the country could potentially have a total capacity of over 2,700 MW within the next four years.

"Demand drivers for data centres are robust, and the additional capacity is expected to be absorbed due to growing requirements for fast and efficient data management and storage solutions," Tan said.

Furthermore, artificial intelligence (AI) technologies are also playing a key role in accelerating demand for data centres in Malaysia.

"We are optimistic about the long-term prospects of the segment, driven by strong demand underpinned by flourishing digital economies and cloud migration," he added.

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