Saturday 22 Jun 2024
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This article first appeared in City & Country, The Edge Malaysia Weekly on March 13, 2023 - March 19, 2023

Malaysia’s industrial property market has been the star of the real estate industry since the outbreak of Covid-19. The rapid growth of e-commerce during the pandemic led to a surge in demand for warehouses, spurring an increase in investments and industrial project launches over the last few years.

This could, however, lead to oversupply in the future. Nevertheless, the outlook for the sector remains optimistic. 

“In the last few years and during the Covid-19 pandemic, Malaysia’s industrial property sector has been doing well with good resilience throughout. It has continued to improve, with growth supported by the e-commerce and manufacturing sectors,” Savills Malaysia managing director Datuk Paul Khong tells City & Country.

While demand for warehouses and logistics facilities has been strong since the pandemic, the reopening of the country’s borders in April last year has had an even more positive impact on the sector, as reflected in the transaction data, he adds.

According to the National Property Information Centre (Napic), there was a transaction volume of 6,043 units of industrial properties in the first nine months of 2022 with an accumulated transaction value of RM15.2 billion, compared with the full-year transaction volume of 5,595 units and total value of RM16.9 billion in 2021.

The acquisition of 34 industrial facilities in i-Park @ Indahpura in the Southern Industrial and Logistics Cluster and i-Park @ Senai Airport City in Johor by AME REIT for RM557 million was one of the significant transactions last year. Other major transactions were an 18.4-acre industrial facility in Johor, which changed hands for RM390 million; a 140-acre industrial land in Serendah that was transacted at RM304.9 million; and a 234.5-acre industrial parcel in Johor that sold for RM289.2 million.

There were a few major industry announcements and launches in 2022. In August, AME Elite Consortium Bhd and Majestic Builders Sdn Bhd announced that they were jointly developing an integrated industrial park in Seberang Perai Tengah with a gross development value (GDV) of RM1 billion.

As for launches, they include the E-Metro Logistics Park in Bukit Raja, Klang, by the Sime Darby Property-LOGOS SE Asia Pte Ltd joint venture; DPL Malaysia III in Kota Kemuning by Daiwa House Group; Penang Science Park North in Simpang Ampat, Penang; and a new phase in Eco Business Park 1 and 2 in Johor.

“Businesses continued to expand, creating demand for more storage capacity, predominantly in warehouses and e-fulfilment centres. The performance of industrial spaces augurs well [for the sector] going into 2023 and demand is expected to grow further. The sector is still the darling of the property market,” says Khong.

“Apart from the conventional industrial space for manufacturing and production plants, we see rising demand from various sectors as well as emerging usage from e-commerce, data centres and integrated industrial parks.”

Port of Tanjung Pelepas … In Johor, Iskandar Malaysia has the potential to attract foreign investors, thanks to its proximity to Singapore, competitive land prices, freehold ownership and lower labour costs

He adds that with the strong global trend of digitalisation and globalisation alongside the growth of e-commerce activities, the outlook for the industrial property market continues to be optimistic.

“There are about 15.6 million e-commerce ­users in Malaysia, with a penetration rate of about 83%. The growth trend in e-commerce continues to be strong as consumers expect better delivery services,” says Khong.

“This requirement will continue to boost demand for warehousing, distribution hubs and logistics facilities. Moreover, growing interest is seen in space expansion and active acquisitions by logistics players, REITs (real estate investment trusts) and 3PL (third-party logistics players).”

Industry risks

While the performance of the industrial property sector has been outstanding over the past three years owing to the surge in warehousing demand, more retailers are reverting to holding efficient levels of inventories with advancements in technology such as automated storage and retrieval systems (ASRS). As a result, there is a growing anticipation of a slowdown in demand for industrial space.

“While there will be an additional 5.4 million sq ft of [industrial] space in 2022/23, most of the incoming supply are built-to-suit warehouses, designed and developed to meet the needs of specific tenants. For those without specific tenants, we believe the market will be able to absorb about 60% to 65% of the incoming supply. E-commerce currently prioritises last-mile delivery, thereby increasing the demand for warehouse space,” says CBRE | WTW chairman Foo Gee Jen.

Developers are advised to plan appropriately before adding new supply to the market to avoid a supply-demand mismatch, he adds. “It is necessary to conduct feasibility studies before implementing a development as they will help in assessing the practicality of a proposed project and provide guidance to industry players and decision-makers.”

Foo highlights that innovation is a key element in meeting investors’ high expectations and demands in new industrial projects.

“For example, industrial spaces should accommodate prospective tenants’ use of technology, such as greater power and sufficient cabling, as technology helps to increase manufacturing or warehousing efficiency. On the other hand, the fulfilment of ESG (environmental, social and governance) requirements is also very important today,” he notes.

Foo expects the industrial property market to continue performing well this year despite the huge incoming supply, but only if developers plan and design new projects well to address the needs of the market and the government continues to improve infrastructure and connectivity to attract more foreign direct investments (FDIs) to boost the industry’s growth.

“Good connectivity with well-developed infrastructure such as the ECRL (East Coast Rail Link), WCE (West Coast Expressway) and Pan Borneo Highway has opened up industrial areas. The latest 5G connectivity will further bolster Industry 4.0, where big data, AI (artificial intelligence) and IoT (the Internet of Things) will improve operations and sustainability,” he says.

Foo lauds the setting up of Technical and Vocational Education and Training (TVET) by the Ministry of Education, which will help produce skilled workers in line with the country’s industrialisation needs.

“However, a key challenge in the industrial property sector is the [insufficient] electricity generated by renewable energy sources. With [the sector] being a major energy consumer, industry players must seek the best formula to navigate towards their ESG goals,” he stresses.

Nonetheless, Foo anticipates that industrial property transactions and business expansion will remain active, particularly in areas with excellent connectivity and infrastructure. “The industrial property market saw solid growth in the past five years and I believe the market will continue to see stable momentum with growing transaction activities in 2023.”

Hotspots

When asked about the hotspots of industrial properties, Savills’ Khong says Penang, Greater Kuala Lumpur and Johor are the top three areas, representing almost 60% of the existing industrial property supply as at 3Q2022. “According to the Malaysian Investment Development Authority (MIDA), the country secured RM194 billion in approved investments in the first nine months of 2022, with Selangor and Johor heading the investment list.”

In terms of Greater KL, he says the scarcity of land in established industrial areas such as Petaling Jaya, Subang Jaya and Puchong has encouraged investors and developers to explore alternative areas. These are primarily located in the north and south such as Klang and Shah Alam, which have remained industrial property hotspots in the region due to their proximity to Port Klang while being surrounded by an existing market with a large talent pool. 

The acquisition of industrial facilities in Senai was one of the significant transactions in the sector last year (Photo by AME)

“Rents of industrial warehouses and logistics facilities are expected to remain stable in Greater KL. Nevertheless, current headwinds may slow the prime rental growth seen by warehouses and facilities due to cautious market sentiment,” says Khong.

Meanwhile in Johor, Iskandar Malaysia has the potential to attract foreign investors, especially from capital-intensive industries with high technology investments, owing mainly to its proximity to Singapore, competitive land prices, freehold ownership and lower labour costs.

Notable developments include Mercedes-Benz’s new after-sales logistics centre in Senai Airport City, Volkswagen’s regional parts distribution centre in Port of Tanjung Pelepas and the Saint-Gobain manufacturing hub.

“Furthermore, data centre investments have gained traction as a direct benefit of a three-year moratorium [on new data centres] in Singapore. Key players such as Bridge Data Centres, Wiwynn Corp, YTL Data Center and GDS Holdings are coming from across the Causeway. The demand for logistics and warehouses is positive [in Johor] and underpinned by e-commerce, coupled with the resilient industrial sector,” Khong notes.

With the presence of a strong electrical and electronics (E&E) cluster, Penang has further positioned itself as and evolved into a regional electronics manufacturing hub, as the pandemic has accelerated the sales of raw materials. This is supported by rapid technological advancements and digitalisation, which have boosted demand for industrial properties in the state.

“This sector is poised to grow and we see foreign companies still setting up operations here, creating opportunities for downstream companies to support manufacturing and supply chain activities. However, given the limited land, Batu Kawan remains one of the industrial hotspots [in Penang], as witnessed by the newer facilities of Lanco Integrated, Boston Scientific Corp, EG Industries Bhd, Indium Corp and Simmtech,” says Khong.

He adds that the prospects for Penang’s industrial property market are bright, as evidenced by Batu Kawan Industrial Park 2’s expansion by another 1,500 acres and Batu Kawan Industrial Park 3’s expansion by another 600 acres, owing to the scarcity of sizeable parcels and upward demand.

“In a nutshell, opportunities are plentiful in the industrial market, but global headwinds and market uncertainties are evident with geopolitical tensions. Nonetheless, the industrial property sector should perform well in 2023 with the fast pace of digitalisation and Industry 4.0 transformation,” says Khong.

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