Kuala Lumpur: Risks in the non-residential property (NRP) sector remained contained in the second half of 2024 despite continued challenges in the office space and shopping complex segments (OSSC), Bank Negara Malaysia (BNM) said in its Financial Stability Review released today.

According to BERNAMA News Agency, concerns over elevated office vacancy rates persisted as new supply continued to outpace demand. The total stock of office space in the Klang Valley rose to 121.7 million square feet in the fourth quarter, up from 121 million square feet in the second quarter of 2024. Continued observations of preferences for more flexible tenancy contracts and hybrid work arrangements suggest that adjustments in supply still have some way to go. As of the fourth quarter of 2024, vacancy rates in the office space segment remained elevated at 28.3 per cent.

Meanwhile, the shopping complex segment improved slightly during the period, as reflected in the marginal decline in vacancy rates amid higher footfall and favourable demand conditions. Risks to financial stability arising from the longstanding weaknesses observed in the OSSC segment are assessed to remain contained. The banking system’s exposure to the OSSC segments is limited, representing only a small share of total banking system loans at 2.5 per cent, down from 2.6 per cent in June 2024.

The asset quality of OSSC loans remained stable, with an impairment ratio of two per cent as at end-December 2024, compared to 2.1 per cent in June 2024. The median outstanding loan-to-value (LTV) ratio for the OSSC segment also remained prudent, standing at 59.5 per cent in December 2024, compared to 58.9 per cent in June 2024. BNM stated that the short-term outlook for the OSSC segment remains cautious given existing weaknesses in the segment.