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- Buckley said that demand for hotel real estate, including serviced apartments and hybrid hotel-apartment concepts, is expanding, particularly in Kuala Lumpur, Johor and Penang.
- The residential market is likely to see continued demand in 2026, though buyers are becoming more discerning amid affordability pressures and a high supply pipeline.
KUALA LUMPUR (Jan 13): Malaysia’s property market is entering 2026 with a clearer hierarchy of performance, where alignment with structural demand, capital discipline and execution certainty are expected to matter more than broad market momentum, according to Knight Frank Malaysia.
Insights from the firm’s Real Estate Highlights (REH) 2H2025 point to a market that is no longer moving in a single direction. Instead, assets that are well positioned in terms of purpose, infrastructure readiness and occupier relevance are expected to outperform, while misaligned developments face growing penalties.
“The market is no longer moving in a single direction. Over the past six months, we have 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 group managing director Keith Ooi.
As Malaysia moves into 2026, policy support is expected to remain an enabling backdrop rather than a primary performance driver. Market outcomes will increasingly hinge on how well assets are aligned with long-term demand fundamentals, supported by delivery certainty and operational readiness.
Industrial, data centres and hospitality to anchor forward momentum
Looking ahead, the industrial and logistics sector is expected to remain resilient, though increasingly selective. Demand is likely to concentrate in locations that offer infrastructure readiness, power availability and operational efficiency, particularly within advanced manufacturing and logistics ecosystems.
“Heightened trade costs and policy uncertainty have temporarily disturbed industrial demand at the margins, reinforcing occupier and investor selectivity rather than reversing underlying market resilience,” said senior executive director of land and industrial solutions Allan Sim.
The data centre sector is also transitioning into a more execution-driven phase heading into 2026. Growth is shifting away from headline investment announcements towards delivery certainty, governance readiness and access to critical resources such as power and water.
“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 executive director of valuation and advisory Justin Chee.
In hospitality, the sector is entering an early positioning phase ahead of Visit Malaysia 2026, with improving travel flows and sustained cross-border demand influencing room inventory planning and pricing strategies.
“The Visit Malaysia 2026 campaign targets millions of visitors and high tourism receipts, providing a powerful demand driver for hotel assets. This is expected to lift occupancy rates and average room rates, benefiting investment performance,” said executive director of capital markets James Buckley.
He added that demand for hotel real estate, including serviced apartments and hybrid hotel-apartment concepts, is expanding, particularly in Kuala Lumpur, Johor and Penang.
Office, retail and residential markets remain polarised
The office market is expected to remain structurally polarised in 2026, with occupiers continuing to prioritise quality, flexibility and ESG compliance over scale.
“Leasing decisions are increasingly centred on quality, flexibility and efficiency, which is accelerating the performance gap between newer, well positioned buildings and older stock,” said senior executive director of office strategy and solutions Teh Young Khean.
The two-tier dynamics are most evident in the Klang Valley, where newer, green buildings are being absorbed earlier, while older stock faces mounting pressure unless actively repositioned.
In retail, performance is expected to remain highly dependent on format and location, with landlords prioritising tenant retention and mix optimisation amid intensifying competition.
“As competition intensifies, especially in overlapping catchments, landlords are prioritising tenant retention and mix optimisation over headline rental growth,” said director of retail management and consultancy Yuen May Chee.
The residential market is likely to see continued demand in 2026, though buyers are becoming more discerning amid affordability pressures and a high supply pipeline.
“Demand remains active, but buyers are more selective due to the high housing pipeline, both existing and new inventory. We are seeing self-correction in selected markets through pricing and product discipline rather than broad-based recovery,” said senior executive director of research and consultancy Judy Ong.
Infrastructure-led corridors, including the Rapid Transit System (RTS) Link in Johor and major rail and road projects across the Klang Valley and Penang, are expected to remain key demand drivers.
Outlook underpinned by 2H2025 research
Data from the second half of 2025 underscores why momentum alone is no longer sufficient.
Industrial markets continued to show resilience, with prime manufacturing facilities in the Klang Valley maintaining steady take-up, while Johor benefited from deeper cross-border integration under the Johor-Singapore Special Economic Zone. Penang recorded a 40.6% year-on-year increase in foreign direct investment, despite a decline in transaction volumes due to land scarcity.
Across the office, retail and residential segments, performance increasingly diverged based on asset quality, location and alignment with end-user demand. Overhang levels improved selectively where pricing and product offerings were well-calibrated, pointing to gradual market self-correction rather than a broad-based recovery.
Overall, the signals from 2H2025 suggest that the central challenge heading into 2026 is not whether demand exists, but whether strategies are aligned with the fundamentals that now matter most—infrastructure readiness, asset purpose and disciplined execution.
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