THE Malaysian industrial property sub-sector, a less-exciting and often overlooked segment in terms of investment, saw plenty of interest and growth during the pandemic.
This was as various lockdowns and movement restrictions over the course of the last two years resulted in a surge in e-commerce and spurred demand for logistics and warehousing.
However, with the Covid-19 situation in the country now being more manageable than it was a year ago; and as society starts adapting to life with the virus, will the industrial sector still continue to generate interest?
At the launch of CBRE|WTW’s 2022 Market Outlook Report recently, property and facility management managing director Tan Ka Leong says he expects e-commerce to continue driving demand for industrial space this year.
“Modern purpose-built facilities in mature locations will continue to be in high demand, while more cold storages are required to support the rise in demand by pharmaceutical players,” he says during his presentation.
Meanwhile, Savills Malaysia group managing director Datuk Paul Khong says the pandemic has left companies with no choice but to adapt to omnichannel and online sales strategies.
“We expect the pent-up need for high-quality warehouse facilities to positively impact rental growth in 2022.
“In addition, geographical diversification begins to take effect as more companies seek to expand and get closer to customers, thereby bringing up land values in the near term.”
Similarly, Knight Frank Malaysia believes that the reopening of the country’s economy will spur demand in the industrial sector, as evident by improved transactional activities in the second half of 2021.
Knight Frank Malaysia research and consultancy executive director Judy Ong says rapid digital adoption, especially with regards to products relating to food, fast-moving consumer goods, health and pharmaceuticals, have continued to spur demand for industrial real estate.
“The prolonged lockdowns and restrictive movements have triggered a digital transformation and e-commerce boom.
“Malaysia’s e-commerce market is at an inflexion point and in the third quarter of 2021, its income by establishments grew 17.1% year-on-year to RM279bil.”
Ong expects the momentum to continue into 2022 and beyond, as demand is expected to remain resilient.
“Additionally, Budget 2022 has a RM250mil allocation for the ‘Shop Malaysia Online’ and the ‘Go-eCommerce Onboarding’ campaigns.
“The government is committed to reviving the economy with digitalisation and aims to attract new high-quality, high-tech and green-tech investments, as well as prioritising e-commerce development as part of the country’s economic recovery plan.”
Separately, Knight Frank Malaysia industrial capital markets executive director Allan Sim says the industrial property market in Malaysia and its neighbouring countries is entering a “new chapter of revolution”.
“While e-commerce growth will continue to underpin the thriving industrial real estate market performance, the new growth areas will be heavily influenced by factors, driven by the Regional Comprehensive Economic Partnership (RCEP) agreement, automation and the environmental, social and governance agenda.
“The RCEP is set to create the world’s largest free-trade zone for new trade and investment opportunities among the 15 Asia-Pacific participating countries. It represents about 30% of the world’s gross domestic product and about a third of the global population,” he says.
Sim explains that the main benefit of the RCEP is extensive market access and integration into the supply chain with opportunities to reduce tariffs.
“Participating countries are also looking to maximise economic gains from the free trade agreement through increased market openness, investment opportunities and logistics coordination.”
The RCEP agreement came into effect on Jan 1, 2022 for 10 of the participating countries. Malaysia is expected to ratify the agreement soon.
Sim believes this trade agreement will stimulate growth and investments across the region to unlock bigger opportunities for businesses and countries alike.
“This tariff liberalisation exercise will bring about a significant impact among the participating countries, including Malaysia.
“Manufacturers from the United States and European Union are anticipated to take full advantage of the benefits of the free trade agreement by relocating some of their investments into the region, devoting more resources, talent and investments to optimise their supply chain and build up the ecosystem to cater to the growing Asean markets.”
Sim says the RCEP will allow Malaysia to participate in a “more levelled playing field” with other countries.
“We anticipate an accelerated push and adoption of smart factory and manufacturing processes as a means for differentiation.
“Investments in robotics, manufacturing artificial intelligence, advanced technologies and systems enabled by 5G connectivity will generate operational efficiencies.”
Sim says this is in line with the aim of most businesses to reduce the impact posed by global supply chain disruptions as well as labour and raw material shortages.
“We foresee these digital investments to come in the form of both greenfield and brownfield developments by manufacturers.”
According to Knight Frank Malaysia, as of the first half of 2021, the cumulative existing industrial property stock in the Klang Valley stood at 46,316 units.
Another 1,289 units of factories and warehouses are currently under construction while around 1,716 units are being planned.
Knight Frank, in its Real Estate Highlights report for the second half of 2021, says the bulk of existing industrial stock is mainly concentrated in the districts of Petaling and Klang, totalling 14,400 units (31.1% share) and 8,563 units (18.5%), respectively.
“The Klang district, however, topped in terms of future supply with 411 units under construction and 934 units being planned.
“Meanwhile, the Petaling district has 302 industrial units under incoming supply and none in the planning pipeline. The lower future supply may be due to the maturity of the district where there is limited land for industrial developments.”
Knight Frank Malaysia adds that the average rental rates of selected notable manufacturing facilities as well as logistics and distribution centres in Shah Alam and Klang remained stable during the second half of 2021.
It says the average rental rates of facilities in Shah Alam and Klang ranged from about RM1.80 per sq ft to RM2.20 per sq ft per month and from RM1.30 per sq ft to RM1.60 per sq ft per month, respectively.
“Moving into the year 2022, the rental rates are expected to hold steady,” it says.