Andrew Macpherson, JLL APAC's head of asset development, said that the key to increasing the value of these assets lies in integrating smart building technologies and premium amenities.

"Enhancing building assets not only aligns with sustainability goals but also meets tenant expectations, ensuring long-term profitability.

"Landlords must act now to retrofit and enhance assets, ensuring they cater to the rising demand for sustainable office spaces," he said during the company's recent market insight on office buildings in Greater Kuala Lumpur and across Asia-Pacific last week.

The Malaysian government is currently discussing an Urban Renewal Act, expected to be adopted soon, that aims to facilitate the transformation and upgrade of older buildings.

Yulia Nikulicheva, head of research and consultancy at JLL Malaysia, highlighted the importance of asset enhancement in response to evolving tenant preferences and market demands in Greater Kuala Lumpur. 

She noted that upgrades, whether minor or major, can significantly improve building performance and tenant satisfaction.

Nikulicheva pointed out that a large portion of Kuala Lumpur's office stock consists of older buildings constructed before 2015, with the city submarket having the highest concentration of such properties.

In her report, titled "Leveraging Asset Enhancement to Unlock Real Estate Growth," she noted that tenant priorities are increasingly focused on spaces aligned with environmental, social, and governance (ESG) commitments. 

Nikulicheva also observed that the rising value of green-certified office buildings demonstrates clear performance advantages over non-green properties, significantly impacting vacancy rates and rent levels.

According to JLL's analysis, the KLCC precinct and its surrounding areas feature a total net lettable area (NLA) of 9.84 million square feet (sq ft), with an occupancy rate of 85.3 per cent and an average monthly rent of RM7.68 per square foot (psf). 

The Tun Razak Exchange (TRX) and Merdeka 118 precincts offer a combined NLA of 6.61 million sq ft, an occupancy rate of 75.2 per cent, and command a higher average monthly rent of RM9.63 psf.

In the areas encompassing Jalan Sultan Ismail, Jalan P Ramlee, and Pavilion Kuala Lumpur, the total NLA stands at 4.91 million sq ft, with occupancy at 68.3 per cent and an average monthly rent of RM5.59 psf. 

The old central business district (CBD) area exhibits lower metrics, with an occupancy rate of 72.1 per cent and an average monthly rent of RM4.31 psf across its 6.62 million sq ft of NLA.

According to JLL's analysis, international comparisons underscore the benefits of asset enhancement. In Singapore, minor upgrades to an older office building effectively increased monthly rents from S$7.50 to S$11.00 psf, with occupancy rising from 90 per cent to 96 per cent.

Similarly, in Melbourne, Australia, medium-level asset enhancements raised monthly office rents from AU$950–AU$1,400 psf to AU$975–AU$1,450 psf, with occupancy improving to 96 per cent.

Nikulicheva observed that newly completed ESG-compliant office buildings in Greater Kuala Lumpur achieve occupancy rates of 80 per cent to 90 per cent, much faster than the rest of the market. 

"This is because tenants show a strong preference for green spaces.The average achievable rent for green-certified offices notably exceeds that of non-green buildings. We estimate that by 2030, tenants will require an additional seven million square feet of green space to fulfil their requirements for sustainable and environmentally friendly spaces. 

"This presents an opportunity for landlords with older stock to meet the growing demand and retrofit their properties to align with sustainable practices. The rising expectations for sustainability necessitate proactive asset enhancement measures to bridge the supply-demand gap for green buildings," she explained.

Nikulicheva also pointed out that landlords' incomes suffer when tenants move out and rental rates decline. 

"The good news is that successful upgrades are now showing real increases in occupancy and rental levels, giving owners more confidence," she said.