As Malaysia's commercial property landscape evolves, data centres (DCs) and industrial/logistics emerge as the most resilient and promising sectors for 2025, according to the Malaysia Commercial Real Estate Investment Sentiment Survey (CREISS) 2025.

Based on insights gathered from industry leaders and stakeholders, these sectors are buoyed by increasing demand for cloud computing, e-commerce growth and Malaysia's position as a regional trade hub.

The survey, released by Knight Frank Malaysia, predicts these sub-sectors will outperform, with notable contributions from Johor's burgeoning data centre developments and the continued expansion of Klang Valley's industrial landscape.

"A brighter outlook is projected for the retail and hospitality sub-sectors, bolstered by rising consumer spending and tourism recovery where Malaysia welcomed 22.5 million tourists as of November last year — a clear indication of growth momentum for 2025," the survey showed while highlighting that industry players foresee improved rental and occupancy rates in these sectors, underscoring their recovery potential.

Meanwhile, despite Bank Negara Malaysia maintaining the Overnight Policy Rate at 3% throughout 2024, key challenges persisted including rising interest rates, inflationary pressures, financing difficulties and increasing construction costs driven by geopolitical tensions and supply chain disruptions.

"Rising building vacancy rates due to hybrid work trends and a supply-demand gap, along with fiscal challenges, further strained the commercial real estate landscape.

The retail sector also faced declining sales due to brand boycotts, while risks anticipated for 2025, such as rising costs, tenant demand shifts, and regulatory changes, are expected to exacerbate concerns," the survey showed.

The CREISS 2025 also highlighted the growing importance of environmental, social and governance (ESG) in real estate, with a focus on energy efficiency, green certifications and sustainable practices as businesses adapt to regulatory changes and investor demands.

"The introduction of carbon tax policies in Budget 2025 emphasises the need for ESG-aligned investments.

"About 34% of respondents say their organisations have fully embraced ESG, while 66% have partially integrated it, focusing on key issues in their decision-making and reporting," the report showed.

Knight Frank Malaysia Group Managing Director Keith Ooi said ESG is no longer a choice but a necessity for real estate players to remain competitive in a rapidly changing landscape.

"This sentiment is echoed by 91% of our survey respondents who recognise ESG's critical role in their investment strategies," he added.

The survey also identifies Klang Valley and Johor are set to lead commercial real estate investments in 2025.

"Klang Valley remains Malaysia's central business and economic hub, while Johor, strategically located near Singapore, continues to draw interest in data centres and industrial/logistics.

"The Johor-Singapore Special Economic Zone (JS-SEZ) and increasing land acquisitions for DC projects highlight Johor's growing appeal," the survey stated.

Despite challenges like rising construction costs and a tenant-driven market, 91% of respondents remain optimistic about Malaysia's commercial real estate market in 2025, with 34% planning to increase their investments.

Nevertheless, 75% view the foreign domestic investment outlook as favourable, supported by RM254.7 billion in approved investments during the first nine months of 2024, a 10.7% increase from 2023.

Malaysia's economy shows positive momentum with 5.2% GDP growth and a 3.3% unemployment rate during the same period.