Malaysia’s industrial property sector continues to thrive, underpinned by RM163.6 billion in data centre investments, and is evolving, with the integration of 5G, artificial intelligence (AI), automation and green building practices, according to the Knight Frank Malaysia Real Estate Highlights (REH 1H2025) report.

Selangor, Johor, Penang and Sabah are emerging as industrial growth engines and gaining investor confidence, while Sarawak’s Kota Petra Green Technology Park reflects a rising focus on sustainability and digitalisation.

Meanwhile, the signing of the Comprehensive Economic Partnership Agreement (CEPA) with the United Arab Emirates in January 2025, the ongoing bilateral free trade agreement negotiations with South Korea, and Malaysia’s chairmanship of Asean show the broader efforts taken to deepen global trade ties.

According on the report, Sarawak topped the list for industrial property transactions, with a year-on-year (y-o-y) increase of 90% and 70% in volume and value transactions respectively in 1Q2025.

This performance is due to improvements in industrial areas, logistics and connectivity. For instance, the RM375.5 million, 1.55km Batang Saribas Bridge connecting Pusa and Beladin minimises reliance on ferry services. The Batang Rambungan Bridge project, expected to be completed by May 2027, also shortens travel time between Kuching, Lundu and Sematan.

Furthermore, the commitment to renewable energy and decarbonisation makes the state appealing to potential buyers and investors. For example, the Kota Petra Green Technology Park, which is being developed by Zecon Bhd in collaboration with Sarawak Digital Economy Corp Bhd (SDEC) and Centre for Technology Excellence Sarawak Sdn Bhd (CENTEXS), aims to establish a premier hub for green industries and digital innovation. Also, the 135-acre FutureData Park in Kuching, which is slated to start operating in 2026, is designed to support more than 1,000 racks, delivering up to 125kW.

Meanwhile, the launch of the Aerospace Academy at CENTEXS in Lundu positions the state as a hub for high-value aerospace component production and research, says Knight Frank.

Ranking second, Sabah is expected to maintain its growth trajectory, bolstered by the expansion of downstream activities in vital industries and the state’s government strategic initiatives. Transactions rose 13.7% y-o-y in volume and 11.5%, or RM203.3 million, in value in 1Q2025, reports Knight Frank.

The manufacturing sector remained the key driver of the state’s economic growth, contributing RM7.3 billion. The state government has also imposed a state sales tax on gold and silver — on top of the recently added silica sand and palm oil biomass — as a strategy to diversify its revenue sources beyond the traditional revenue streams.

Knight Frank says the Sipitang Oil and Gas Industrial Park (SOGIP) will create a ripple effect on the economy in the west coast of Sabah, boosting opportunities for maritime trade in the region as well as creating job opportunities for residents, enhancing household income and promoting sustainable economic growth.

Meanwhile, Knight Frank notes that Penang’s transaction activity fell 10.7% y-o-y in volume and a steeper 37.3% in value. Yet, the market is projected to remain resilient through ongoing infrastructure enhancements, sustained investment interest and its strategic position in the global electrical and electronics (E&E) supply chain.

Penang secured RM6.1 billion in foreign direct investment (FDI), reflecting a significant 5½-fold increase from the RM1.1 billion recorded in 1Q2024, contributing 23.9% to the nation’s FDI total.

Domestic direct investment (DDI) in Penang showed a decline of 3.2%, however,  from RM677.3 million in 1Q2024 to RM655.8 million in 1Q2025. During the quarter, the state recorded a total transaction volume of 100 units, falling 10.7% y-o-y from 112 units.

“The decline in both volume and value of transactions is mainly due to underperforming industrial transactions in the vacant plot and detached categories,” Knight Frank says.

The standout performer was Seberang Perai Utara, which experienced a five-fold surge in total value of transactions, likely driven by a few large-value deals. In contrast, other districts recorded substantial decreases in value, with Timur Laut and Seberang Perai Tengah experiencing the highest y-o-y declines of 67.7% and 53.2% respectively.

In a commitment to boost the gold and jewellery sector, the Penang state government has proposed Batu Kawan as a Batu Kawan Gold Industrial Zone, as the locality has emerged as the most promising economic growth corridor in the state. It is aimed at transforming Penang into a regional hub for gold trading and innovation.

According to Chief Minister Chow Kon Yeow, two major developments in the zone are nearing completion and expected to begin operations soon. They are expected to generate high-skilled employment, facilitate technology transfer and enhance the economic value of the sector.

Penang’s logistics infrastructure and strong retail performance in the gold and jewellery sector, coupled with its status as a key tourism destination, provide a solid foundation for growth.

Selangor is driven by diversified investments and continues to be a strategic location for multinational corporations, owing to its proximity to major ports, a mature infrastructure network and readily available workforce. The transaction volume and value for 1Q2025 show an increase of 676 industrial units and RM3.4 billion respectively, but the average price per industrial transaction shows a decrease of 5.9% y-o-y.

The Klang Valley’s warehousing space supply rose by 360,000 sq ft, and an additional 4.2 million sq ft increase in the remainder of the year is anticipated. The gap in medium to large manufacturing plants remains, however, owing to limited supply, causing occupiers and manufacturers to face longer lead times and higher costs.

“There has been a decline in significant industrial property transactions valued above RM20 million, marking a slowdown in high-value deals and indicating a cautious investment sentiment or a shift in market dynamics within the industrial sector,” says Knight Frank.

Johor’s industrial sector is shifting towards environmental, social and governance (ESG) principles and smart manufacturing by introducing eco-friendly industrial parks, including those with Green Building Index (GBI) gold certifications and solar-ready infrastructure.

Although Johor’s industrial transaction volume shrank by 353 units, the total value of industrial transactions rose 11.7%, achieving RM1,874.5 million in sales, with most transactions concentrated in the Kulai and Johor Bahru districts.

Kulai experienced an increase of 207.7%, or RM882.1 million, in total transaction value whereas Johor Bahru declined 33% or RM771.1 million y-o-y. Both districts saw a drop in volume: Kulai fell 31.1% y-o-y to 91 units, from 132; and Johor Bahru shrank 10.6% to 202 units, from 226.

Economic integration and logistics efficiency have also been enhanced with the Johor-Singapore Special Economic Zone (JS-SEZ), Rapid Transit System (RTS) Link project and Gemas-Johor Bahru Electrified Double-Track Rail project as the main drivers.

Growing interest in high-value industries such as clean energy, AI, semiconductors and halal-certified manufacturing is also strengthening Johor’s position as a regional industrial hub.

The local data centre sector is shifting its focus towards executing announced plans and delivering operational capacity. Knight Frank reports that the country’s digital investment tripled in 2024 to RM163.6 billion, with investments in data centres and cloud infrastructure accounting for 76.8% of total approved digital investments.

The government remains committed to attracting new investments, with stronger emphasis on job creation, renewable energy adoption, ecosystem development and positive spillover effects on the surrounding economy.

“In just the first half of 2025, RM42.6 billion worth of digital investments were approved and more than 70% is represented by data centres and cloud infrastructure projects,” says Knight Frank.

Selangor and Kuala Lumpur are leading this sector, with the completion of Equinix Inc’s second phase of KL1 International Business Exchange data centre in Cyberjaya, Selangor, followed by the planned RM423 million KL2 on a newly acquired 14,300 sq m site in Kuala Lumpur.

Phase 1 of Exsim Group’s hyperscale data centre in Bukit Jalil is on track, with its structural completion and obtaining of the certificate of completion and compliance targeted for 2Q2025. Phase 2 is slated for full completion in 2026. TM Global is expanding its Klang Valley Data Centre in Cyberjaya and Iskandar Puteri Data Centre in Johor to cater for rising demand from hyperscalers, over-the-top (OTT) platforms and AI-driven applications.

The government has also taken the initiative to balance the rapid expansion of data centre investment and limited resources. In January 2025, the National Water Services Commission (SPAN) approached the government with the idea of establishing regulations on water usage limits, given the large consumption of the resource for cooling purposes.

Johor also plays a role in the data centre sector. Global data centre developer Yondr secured more than RM4.1 billion to fund the construction and initial operations of an upcoming campus in Johor. The project, located on a 72.5-acre site in Sedenak Tech Park, is set to deliver 300mw of critical IT capacity upon completion.

In 1Q2025, Microsoft Payments (M) acquired a 22.6-acre plot in Pulai from Crescendo for RM119.8 million as well as an industrial tract of 138.5 acres from Eco World Development Group Bhd (KL:ECOWLD) for RM694 million. Meanwhile, EPG Data Center Module Sdn Bhd is investing RM360 million to build a new 25.5-acre data centre facility in Senai Airport City, Johor, as the company expands in Southeast Asia.

Other announcements in the market include plans for newer data centre facilities and collaborations for partnership to meet the highest standards of efficiency to ensure the sustainability of resources.