This article first appeared in City & Country, The Edge Malaysia Weekly on July 22, 2024 - July 28, 2024

The industrial sector in several states in Malaysia witnessed significant growth in terms of foreign investments in the first quarter of the year, indicated by major investments in the data centre market, growth in the electrical, mining and manufacturing subsectors as well as support from the recovery of export-oriented industries, according to Knight Frank Malaysia’s The Real Estate Highlights 1H2024 report that was launched on July 17.

Notably, for the manufacturing sub-sector, Kedah recorded the highest amount of approved foreign investments at RM30.98 billion in 1Q2024.

Knight Frank Malaysia executive director of land and industrial solutions Allan Sim attributed this to the high demand and spillover effect from Penang. “International orders are coming in fast and manufacturers could not get their sites in Penang to be ready on time. Hence, they head to the nearest state, that is Kedah,” he explained during his presentation at the launch of the report.

He added that the Kedah Express Construction Permit (E10) initiative — which allows the state government to approve construction projects in less than 10 months — has significantly expedited the process for investors.

After Kedah, Klang Valley’s manufacturing sub-sector recorded approved foreign investments of RM3.27 billion, followed by Johor at RM2.33 billion, Penang at RM1.82 billion and Sarawak at RM1.29 billion.

Overall, Malaysia attracted RM83.7 billion in approved investments across all industrial sectors in 1Q2024, a year-on-year (y-o-y) increase of approximately 13% compared to RM74.1 billion in 1Q2023. Domestic direct investments (DDI) accounted for RM36.7 billion (43.8%), while the remaining RM47 billion (56.2%) came from foreign direct investments (FDI), the report said.

Meanwhile, the industrial property market in Klang Valley saw increased activity in 1Q2024 compared to the same period in 2023, with 699 transactions valued at RM6.4 billion. This marked a 20.7% increase in transaction volume and a 34% rise in transaction value y-o-y.

The average price per industrial transaction was approximately RM5.3 million, reflecting an 11% y-o-y increase and indicating a trend towards higher-value transactions during this period.

For instance, Sim noted that the transaction value for detached factories in the Klang Valley rose significantly by about 44% y-o-y to an estimated RM2 billion in 1Q2024.

According to the report, terraced factories remained the most transacted industrial property type in 1Q2024, accounting for approximately 44% of the total transaction volume. This was followed by vacant industrial plots and semi-detached factories, each representing 20% of the total transactions.

The cumulative industrial supply in Klang Valley stood at 50,825 units, with the majority or 30.5% in the Petaling (14,413 units) district and 18.8% in the Klang (8,875 units) district. As of July 2024, there are 1,496 industrial units under construction and another 2,130 units in the planning stages.

In 1H2024, the completion of two warehouses/distribution centres, namely Bandar Bukit Raja Industrial Gateway and Axis Mega Distribution Hub Phase 2, collectively added approximately 1.1 million sq ft of industrial space to the existing supply.

Besides that, the report noted that data centre investments are playing significant roles, contributing to the sector’s growth and driving up land prices, especially in Johor. Between 2021 and 2023, Malaysia attracted RM114.7 billion worth of investments in data centres and cloud services. Notable investments during this period include Google’s establishment of data centres in the Klang Valley.

Moving forward, the manufacturing sector is expected to grow by 3.5% in 2024, driven by the recovery of export-oriented industries and sustained growth in the domestic cluster. The electrical and electronics (E&E) sector, which constitutes about 40% of the country’s exports, is anticipated to rebound, buoyed by global technological trends like digitalisation, the Internet of Things (IoT), 5G networks and electric vehicles.

Despite inflationary pressures and global headwinds, Malaysia’s residential property market improved in 1Q2024. A total of 62,823 transactions worth RM25.25 billion were recorded, marking a 16.6% increase in volume and a 21% increase in value (1Q2023: 53,861 transactions valued at RM20.86 billion), according to the report.

In the Klang Valley, apartment/condominium and serviced apartment categories recorded 2,937 transactions worth RM2.51 billion in 1Q2024, showing significant annual growth of 37% in volume and 49.8% in value (1Q2023: 2,144 transactions valued at RM1.68 billion).

“The high-end high-rise residential segment in Klang Valley is currently experiencing significant growth in market activity. This upward trend is highlighted by rising sales volumes and an increase in the number of newly launched projects. Over the past six months, there has been a concentration of developments in KL city centre,” the report said.

Similarly, the high-rise residential sector in Johor Bahru has seen improvements, marked by the launches of new projects and the announcement of the Johor Bahru–Singapore Rapid Transit System (RTS) Link.

Moving forward, Knight Frank expects the projects located near the JB city centre to maintain their upward trajectory, while others will experience positive effects from the ripple.

In Penang, the commencement of construction of the Penang LRT Mutiara Line in 4Q2024 is expected to boost the residential market.

Other property sectors will continue to see positive momentum for the rest of the year, according to Knight Frank’s report.

The office market will continue to see growing demand for co-working and flexible office spaces, reflecting changing work patterns and preferences.

In the retail sector, trends indicate a surge in digital integration and experiential offerings, with retailers adapting to changing consumer preferences and enhancing in-store technologies to boost engagement and sales.

As for the hospitality sector, the luxury hotel segment is set for significant growth, with new developments dominated by international brands. Rising average occupancy rates and average daily rates indicate a robust recovery in the hospitality sector, the report added.

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