At a time when most property market sectors are sluggish and uncertain, the industrial sector is a bright spot.
“The industrial market in Malaysia appears to have held up in the last few quarters, despite the economic uncertainty,” says Savills Malaysia director of research and consultancy Amy Wong.
CBRE | WTW’s Asia-Pacific Real Estate Market Outlook 2019 says the industrial sector is undeniably one of the main drivers of the economy and the Klang Valley remains the top pick for investment in Malaysia. From January to June last year, the Klang Valley had total approved investments of RM3.1 billion, accounting for 25% of the country’s total approved investments. Foreign investors have poured in RM1.6 billion.
“On the manufacturing front, Greater KL ranked second in the country, having secured 251 projects valued at RM19.11 billion. It is anticipated that the aerospace, logistics and halal segments will be the next focal point,” says Wong.
Knight Frank Malaysia’s Real Estate Highlights 2H2018 says Selangor — with its strategic location, well-developed infrastructure and pool of skilled workers — had the most approved manufacturing projects (83) from January to June last year.
According to Malaysia Investment Development Authority (Mida) Selangor director Noor Aini Samoon, the industrial market has evolved in tandem with industrial developments in the country, especially in Selangor.
“The companies that have invested in Malaysia are not just focusing on the Malaysian market, but also the regional and global markets. The demand for industrial property has contributed to the growth of the cities, for example, how Shah Alam has evolved from just an educational city, with Universiti Teknologi MARA (UiTM), into one of the most industrialised cities in Malaysia with more than 20 industrial parks,” says Noor Aini.
Mida’s statistics show that many existing manufacturing companies in Selangor are expanding their operations. Last year, a total of RM18.9 billion in investment was approved for Selangor, the highest approval rate recorded so far, and an increase of 238% from 2017. These comprised 241 projects and 29% were from existing companies.
“An investment value of RM5.4 billion by existing companies for expansion and diversification was approved. These companies may require new facilities or factories to increase their operational capacity. Therefore, there is an overwhelming demand for industrial land and factories to cater for the existing companies and also new projects in Selangor,” says Noor Aini.
Knight Frank says in a recent press release that industrial properties are now moving towards sizeable scale with higher specifications. Some examples are Area Logistics @ Ampang at the Ulu Kelang Free Trade Zone and Century Logistics upcoming headquarters in Bandar Bukit Raja.
It also notes that manufacturing and logistics players are looking at centralising their operations and improving their business capacities. The government is encouraging further industrial development in selected strategic locations with a focus on developing key industries, such as aerospace.
“In 2019, we anticipate a higher level of landbanking among industrial property developers. This is because strong latent demand continues to be omnipresent, especially for industrial properties with high specifications, as occupiers understand the need to jump onto the Industry 4.0 bandwagon in order to future-proof their businesses. This presents a unique opportunity for developers and investors alike to gain attractive monetary returns by providing end users with the right products,” says Knight Frank Malaysia executive director of capital markets Allan Sim.
He adds that moving forward, Knight Frank Malaysia expects to see new large-scale industrial developments taking shape in strategic locations due to robust demand for warehousing.
“For example, the proposed free trade zone in Pulau Indah, which was recently unveiled by the government, is expected to generate interest from manufacturers and logistics operators alike. As for established industrial parks, we continue to see redevelopment of debilitated factories into multi-storey facilities as a means of mitigating high land cost. All in all, Malaysia’s industrial property sector, which has been the silver lining for the subdued property market in recent years, is set to continue its resilience,” says Sim.
Klang Municipal Council (MPK) deputy director of town planning Zailani Panot says, “Malaysia’s industrial market — especially in the logistics sector — is seeing positive, albeit slow, growth in the property market. The most recent study in 4Q2018 showed that Malaysia’s industrial production index grew 3.2% year on year.”
Sime Darby’s industrial projects in Klang and Sepang
According to Savills Malaysia’s Wong, industrial hot spots in the Klang Valley are townships that have industrial development components, such as Sime Darby Property’s Bandar Bukit Raja, PNB Development Sdn Bhd’s Kota Seri Langat and Eco World Development Group Bhd’s Eco Grandeur, which are capitalising on the soon-to-be-completed West Coast Expressway (WCE).
“In the south of the Klang Valley, areas such as Klang, Dengkil and Nilai would also be hot spots, enhanced by the possible rerouted plan of the East Coast Rail Link (ECRL) from the east coast to Port Klang,” says Wong.
Noor Aini says the industrial locations most preferred by investors in Selangor are Klang, Banting and Shah Alam due to their proximity to the port and airports as well as the availability of a talent pool.
“Sime Darby Property’s project, Serenia City, will have the advantage of being near to the airports as well as many upcoming townships and mature residential areas. Talent is not an issue as Xiamen University Malaysia is located in the same area,” says Noor Aini.
Klang and Shah Alam remain major logistics hubs, where demand exceeds supply. This is the reason for the steep rise in prices of industrial buildings, which also raises the price of land in the surrounding areas, says MPK’s Zailani.
“The industrial market in Klang has been growing steadily over the years. Klang is one of the biggest contributors to Selangor’s gross domestic product. From 1Q2013 to 4Q2018, there was a surge of 11.7% in the supply of industrial land and ready-built factories. The average rental rate in Klang also saw an increase of more than 40% from 1Q2014 to 4Q2018, while other areas, such as Shah Alam-Kemuning, Kota Damansara and Balakong, saw a decrease,” says Zailani.
He says the industrial sector has brought about positive externalities towards the development of the city and has constantly been the driver for job opportunities as well as attracting skilled workers to Klang.
“This, in turn, has encouraged economic activity and elevates the standard of living when more developments such as malls and high-end residential projects are built in Klang. In addition, it creates the ideal conditions for more infrastructure progress within the city, with the WCE slated for completion in 2020 a prime example,” says Zailani.
Major industrial parks in Klang include Bandar Bukit Raja Industrial Park, Pulau Indah Industrial Park, Taman Perindustrian Bandar Sultan Suleiman, Taman Kelang Utama Industrial Area, Meru Industrial Park and Taman Haji Abdul Manan.
“However, Bandar Bukit Raja is the latest and best planned among them, and gives better offerings to industrial players,” he says.
Bandar Bukit Raja, which started in 2002, has 869 acres of planned industrial developments that will be ongoing until 2035.
“Today, 304 acres have been developed and are occupied. The occupants comprise local and multinational companies operating in a variety of industries, including mechanical and engineering, logistics, automotive and food and beverage,” says Zailani.
He adds that the growing Bandar Bukit Raja Industrial Park has had positive spillover effects not just the economy but the social aspects of Klang as well.
“At full capacity, Bandar Bukit Raja Industrial Park will have a total of 82,000 people based there, thereby increasing the pool of skilled workers in Klang. The surge of people working there will also boost economic activity in the surrounding areas, acting as a catalyst for growth. More technological advancements initiated by businesses will also see a higher output in Klang. The industrial park is also ready to equip itself to allow a smooth transition for businesses to embrace Industry 4.0,” says Zailani.
He believes that by unlocking all the industrial developments in Bandar Bukit Raja, there is potential for the development to become an important contributor to Selangor’s GDP.
CBRE | WTW says there are opportunities within existing industrial areas such as Bandar Bukit Raja, Meru and Kapar.
“Recent developments are seen to incorporate the concept of greenery, cleanliness and security, all of which would reshape the image of industrial properties, making them accommodative for office or corporate use,” says the commercial real estate firm.
Meanwhile, the rapid development of Sepang began in 2000, when the district was earmarked as the new international aviation hub, which now houses Kuala Lumpur International Airport (KLIA), klia2 and Sepang International Circuit, home to the Malaysian Grand Prix.
According to the Sepang Municipal Council (MPSp), the local industrial sector has brought trade and industry growth for the development of Sepang, leading to more job opportunities, which has attracted skilled workers.
“This in turn has encouraged economic activities and elevates the standard of living with the development of offices, premium retail outlets and mid and high-end residential developments. It has also created more infrastructure progress within the district, such as the completed Serenia City interchange from ELITE highway, the extension of MEX Highway from Kuala Lumpur to KLIA and the SKLIA Highway from Senawang to KLIA,” says MPSp.
According to the MPSp Local Plan 2025, 12 areas have been zoned as industrial parks with a total area of 3,530 acres. Currently, three main industrial parks are under construction — Serenia Industrial Park, with a focus on logistics (carrier and e-fulfilment), e-commerce, automotive and other manufacturing industries; Tanjung Industrial Park with a focus on heavy and high-tech industry; and KLIA Industry Park with a focus on aerospace, automotive, cargo and high-tech industry.
Started in 2015, Sime Darby Property’s Serenia City has a total of 196 acres of planned light to medium industrial development that will be ongoing until 2025. Currently, 55 acres has been developed, which consists of subdivided light industrial land plots ranging from 1 to 10 acres and 18,000 to 20,000 sq ft detached factories. Last year, 10 plots of industrial land were handed over to purchasers and another 15 detached factories are targeted to be handed over by 3Q2019.
Currently, the development of 22 units of light industrial land is ongoing, which is targeted to be completed by the 3Q2021. Another 98 acres of medium industrial land is waiting to be developed and is in the planning stage.
“The growth of the industrial park in Serenia City is aimed at enhancing economic growth through job creation, capital appreciation and enhancement of the socio-economy. At full capacity, Serenia City Industrial Park will help to increase the skilled workforce in Sepang and boost economic activities in the surrounding areas, acting as a catalyst for further development growth with its strategic location and good connectivity. Once it matures, it will provide spillover benefits to the surrounding areas. Serenia City’s growth potential is reinforced by its close proximity to Kuala Lumpur, Putrajaya, Cyberjaya and KLIA and klia2 via major highways like MEX and ELITE. Serenia City will be one of the major contributors to the growth of Sepang District,” says MPSp.
Noor Aini says industrial parks such as Bandar Bukit Raja and Serenia City are on the right track to meeting investors’ needs because they are offering well-developed infrastructure and good connectivity with beautiful landscaping.
The future of industrial property
“Industrial property is mainly driven by the manufacturing investments that have been attracted to the country. With more industrial activities, small and medium enterprises would benefit, hence, more demand for industrial space would be generated.
“The unrelenting spur of retail and e-commerce activities is also encouraging the uplift of demand for warehouse spaces. There is a growing trend in built-to-suit industrial properties, especially high quality logistics and industrial spaces,” says Savills Malaysia’s Wong.
According to Knight Frank’s Commercial Real Estate Investment Sentiment Survey, most respondents were positive about the overall performance of the industrial sector. An increasing number of players, especially lenders and fund/real estate investment trust managers, are expected to gravitate towards the logistics/industrial sub-sector.
“Concerted efforts by government agencies to create more activity in the industrial sector by riding the global wave of Industry 4.0 have seen industrial assets produce favourable and stable yields. This property segment continues to gain traction among investors, especially fund/REIT managers,” says Knight Frank’s Sim.
Zailani, meanwhile, believes the emergence of Industry 4.0 also means that companies that can innovate faster will have a competitive edge.
“Increasing the speed of technological innovation within companies is therefore crucial at this time. The new government has further incentivised the adoption of Industry 4.0 by unveiling Industry4WRD, an initiative aimed at catalysing the adoption of Industry 4.0 methods with a focus on industrial players, namely in the manufacturing sector, through more public-private collaborations and investment-friendly taxes,” says Zailani.
However, challenges remain. MPSp believes that progressive changes are needed in the design of industrial buildings, including larger spaces, more sophisticated racking systems to save space and cost, better safety systems as adopted by multinational companies, dock levellers and loading bays.
“These changes are imperative for developers to attract more industrial property buyers in the current market,” says MPSp.
Noor Aini believes it is crucial to ensure that the infrastructure and facilities required by the industry are ready and fully functional with world-class standards as most of these projects cater for the regional and global markets. Roads and highways, high-speed broadband, gas pipelines, logistics and storage facilities, financial assistance such as loans, grants and incentives as well as factory security are among the infrastructure needs.
“In fact, the No 1 factor in driving industrial investment in the country is the infrastructure. Personally, I think this is also the reason why Selangor is the most industrialised state in the country. The ease of doing business, especially when dealing with government agencies, is also an important factor,” says Noor Aini.
In conclusion, the future of industrial activities in the Klang Valley and the industrial property market remains upbeat, and is well supported by local and foreign industrial players, according to CBRE | WTW.