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KUALA LUMPUR (Jan 23): Malaysia’s retail sector recorded a marginal reduction in shopping mall space in 2025, as several underperforming malls closed or temporarily ceased operations for refurbishment, while occupancy levels showed a gradual improvement.
According to the Henry Butcher Perspective—Malaysia Property Outlook 2025 report as at 3Q2025, total existing retail space in shopping malls stood at 17.27 million sq m, down from 17.97 million sq m in 2024, representing a 3.86% decline.
During the same period, occupied space amounted to 13.58 million sq m, resulting in an occupancy rate of 78.6%, compared with 77.6% a year earlier.
Henry Butcher Malaysia chief operating officer Tang Chee Meng said tourism has played a direct role in supporting the retail sector, as visitors typically combine sightseeing with shopping during their stay in Malaysia.
“When you bring in more tourists, where do these tourists go when they’re in Malaysia? Of course they go to tourist attractions, but at the same time, they want to shop.
“This trend has previously been observed among visitors from neighbouring countries, and is also visible among tourists from China, particularly in small- and mid-sized cities,” he said during the media presentation here on Wednesday.
Tang added that international tourists tend to gravitate towards shopping malls that offer air-conditioned comfort and familiar international brands, particularly when prices are lower than in their home countries.
“When they find that prices here are cheaper than what they have to pay back home, they will end up buying. So, higher tourist arrivals would naturally translate into increased retail activity,” he said.
Klang Valley mall occupancy above 80%
The Klang Valley, comprising Kuala Lumpur, Selangor and Putrajaya, recorded a total of 272 shopping centres with a combined net floor area of 7.24 million sq m as at 3Q2025. Of this, 6.06 million sq m was occupied, translating into an average occupancy rate of 83.7%, rising from 75.8% in 2024.
KL had 116 shopping centres with a total net floor area of 3.42 million sq m. Its average occupancy rate increased from 78.0% in 2024 to 86.5% in 2025.
Selangor recorded 153 shopping centres with 3.76 million sq m of retail space, and average occupancy rate rose from 73.8% to 81.2%.
Meanwhile Putrajaya had three shopping centres offering 54,860 sq m of space, with average occupancy improving from 76.1% in 2024 to 85.7% in 2025.
Penang’s occupancy rate just slightly less than Klang Valley
In Penang, total retail space within shopping malls stood at approximately 1.96 million sq m as at 3Q2025, with an overall occupancy rate of 70.8%, slightly below the Klang Valley.
Penang island’s retail segment performed better, with occupancy at 76%, supported by stronger tourism activity, domestic consumption, and established lifestyle and tourist-oriented locations.
Developments such as Sunshine Mall, which opened in late 2024 with 800,000 sq ft of net lettable area, have improved local footfall and trading performance, while The Light Waterfront Shoppes, expected in mid-2026, will further boost lifestyle- and tourism-linked retail activity.
In contrast, Seberang Perai saw no significant retail developments in 2025, and Visit Malaysia Year 2026 (VMY2026) is unlikely to have a strong impact there, as the mainland is not a major tourist destination.
Retail growth projections and regulatory changes
Retail Group Malaysia (RGM) had forecasted an overall growth rate of 3.6% for Malaysia’s retail industry in 2025, following stronger-than-expected growth of 4.9% in 3Q, and a projected 5% increase in 4Q. For 2026, RGM projected a retail industry growth at 4%.
From Jan 1, Phase 4 of the e-invoicing rollout will take effect, requiring companies with annual turnover between RM1 million and RM5 million to generate e-invoices for all business-to-business (B2B), business-to-consumer (B2C) and business-to-government (B2G) transactions. Companies with annual turnover below RM1 million will be exempted.
The service tax on rental income received by owners of commercial premises, including retail properties, will apply if total annual revenue from taxable rental and leasing services exceeds RM1 million within any 12-month period.
The SST rate for micro and qualified small and medium enterprises (SMEs) has been reduced to 6% with effect from Jan 1, while the exemption threshold has been raised from RM1 million to RM1.5 million.
VMY2026 to support retail and hospitality sectors
The year 2026 has been designated as VMY2026, with the government targeting 47 million foreign tourist arrivals and RM329 billion in tourism receipts during the campaign period.
Tang said proactive measures taken by the government, including visa-free entry for visitors from China, India and Asean countries, are expected to support tourism-led spending across retail and hospitality sectors.
The government has extended visa-free entry of up to 30 days until Dec 31, 2026, for visitors from China, India and Asean countries, except Myanmar. Nationals from countries including Canada, Australia, New Zealand, the UK, Japan and South Korea continue to enjoy 90-day visa-free entries.
To encourage domestic tourism, Malaysians will be eligible for an income tax relief of up to RM1,000 for expenses incurred on entrance fees to local tourist attractions, cultural programmes, and heritage activities.
Tang added that medical tourism will also continue to be promoted as part of the country’s broader tourism strategy.
Strong tourism performance in 2025
Malaysia recorded 28.2 million international tourist arrivals in the first eight months of 2025, generating tourism revenue of RM186.4 billion, representing a 14.5% year-on-year increase and exceeding pre-pandemic levels recorded in 2019.
As at 3Q2025, Malaysia had 3,645 hotels with a total of 297,226 rooms nationwide.
The national average hotel occupancy rate for the first nine months of 2025 stood at 56.3%, compared with 54.4% in 2024, supported by higher domestic and international guest numbers.
Tang said improvements in accessibility and transportation infrastructure would further support tourism-related activity by making travel easier for both domestic and international visitors.
“Among the various property sectors, retail is expected to perform relatively well, alongside the industrial sector, supported by tourism activity linked to VMY2026,” he said.
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