Industrial property boom comes to Malaysia

The future of Malaysia’s manufacturing property industry looks promising as it capitalises on global supply chain shifts, supports industrial diversification and embraces sustainability to become a key player in the global manufacturing landscape.

In recent years, supply chain dynamics have been undergoing significant transformations and South-East Asia is emerging as a major player in this shift. As global manufacturers seek to diversify their supply chains and reduce dependency on single- source countries, particularly China, South-East Asian nations like Malaysia are benefitting from an influx of manufacturing investments.

This diversification, driven by the China+1 strategy, is creating new opportunities for the region’s manufacturing property industry, which is poised to experience a wave of growth and expansion.

Preference for South-East AsiaThe Covid-19 pandemic, coupled with geopolitical tensions and trade wars, exposed vulnerabilities in global supply chains.

Many companies that heavily relied on China for manufacturing and production began to explore alternatives to mitigate risks and ensure supply chain resilience. This led to the rise of the China+1 strategy, where companies add manufacturing bases outside China to reduce their reliance on a single country.

For South-East Asia, this shift is presenting new opportunities for growth in the manufacturing sector.

According to JLL Malaysia, South-East Asia and other developing economies in the Asia-Pacific region are becoming net beneficiaries of these supply chain shifts. Chinese companies, in particular, are expanding their manufacturing footprint across the region to capitalise on the growing economies and favourable conditions offered by countries like Malaysia, Vietnam and Thailand.

This trend is not about competition with China but rather a complementary strategy, where South-East Asian countries serve as additional manufacturing hubs.

Malaysia’s competitive edgeAmong South-East Asian nations, Malaysia stands out as an attractive destination for manufacturing investments.

The country’s well-developed manufacturing sector, skilled labour force and strategic location make it an ideal hub for companies looking to diversify their production bases.

Malaysia’s ability to attract foreign direct investment (FDI) is evident, particularly in the electronics and electrical (E&E) sector, which has become a cornerstone of the country’s economy.

Malaysia is home to six out of the top 12 global semiconductor manufacturers and the E&E segment alone contributes 7% of the nation’s gross domestic product (GDP).

JLL Malaysia research and consultancy head Yulia Nikulicheva highlighted key factors that make Malaysia a prime destination for manufacturing expansion.

These include skilled labour, robust infrastructure, favourable environmental regulations and political stability. For manufacturing companies, these non-cost factors are crucial in determining long-term success and sustainability.

Malaysia’s legal system, which shares similarities with British law, also provides a business-friendly environment, giving international investors greater confidence.

Emerging industries Malaysia’s industrial landscape is diverse and robust, encompassing several key sectors that contribute to its manufacturing prowess. The country excels in various industries, including:

1. E&E: The E&E sector is one of the largest export-oriented industries in the country, contributing 38% to total exports.

They produce consumer electronics, electronic components, semiconductors and electrical appliances, making it a vital part of the global supply chain for electronics manufacturing.

2. Rubber industry: Malaysia is the sixth-leading producer of natural rubber in the Asia-Pacific region. The country is a significant player in the production of rubber gloves, automotive components and seals, making it a critical hub for the rubber manufacturing industry.

3. Machinery and equipment (M&E): The country’s M&E sector has seen significant growth, with exports increasing by 25.5% from January to July 2022.

The country produces industrial machinery, electrical equipment and construction machinery, contributing to the growing demand for equipment in global markets.

4. Automotive industry: Malaysia has become an attractive destination for global automotive manufacturers, hosting major brands like Porsche, Volkswagen and Mercedes Benz.

The country is also positioning itself as a regional hub for electric vehicle manufacturing, further boosting its appeal to international investors.

5. Halal food industry: The country aims to become a leading global supplier of halal products, with the halal market projected to expand to US$3.27 trillion by 2028.

The country focuses on producing processed foods, beverages and dairy products, catering to the growing demand for halal-certified goods worldwide.

6. Chemical industry: The chemical sector is another significant contributor to Malaysia’s economy, accounting for 6% of GDP.

The industry produces petrochemicals, oleochemicals, plastics and agrochemicals, supporting various downstream industries.

Strategic industrial hubs Malaysia’s industrial strengths are further supported by its strategic industrial clusters, which serve as key hubs for manufacturing activities:

• Penang: Known as the Silicon Valley of the East, Penang is a major hub for the E&E sector, with a strong presence of semiconductor manufacturers.

• Johor: Located near Singapore, Johor is a critical hub for the automotive, chemical and rubber industries. It also serves as a gateway for trade and logistics.

• Greater Kuala Lumpur: The capital region is home to various industries, including pharmaceuticals, food processing and machinery manufacturing. Its strategic location and developed infrastructure make it a prime choice for investors.

These industrial clusters are supported by Malaysia’s advanced road, seaport and airport infrastructure, ensuring efficient connectivity for manufacturers and ease of access to global markets.

Govt support, policiesThe government has implemented several initiatives to further enhance the country’s manufacturing competitiveness.

The New Industrial Master Plan 2030 and the National Fourth Industrial Revolution Policy are driving innovation and technological advancements across industries.

These policies aim to strengthen the country’s position as a global manufacturing hub by encouraging the adoption of advanced technologies, such as automation, artificial intelligence and digitalisation.

Additionally, Malaysia offers various incentives to attract foreign investors including tax breaks, grants and subsidies.

These incentives, coupled with the country’s competitive business costs and skilled labour force, makes the country an appealing destination for manufacturers seeking to expand their operations.

Sustainability and environmental focusAs global attention shifts toward sustainability, Malaysia is positioning itself as a leader in green manufacturing. The country leads South-East Asia in the Energy Transition Index and has committed to achieving net-zero greenhouse gas emissions by 2050. Malaysia’s manufacturing sector is increasingly adopting energy-efficient practices, such as the use of renewable energy sources and sustainable waste management systems.

Companies investing in Malaysia can benefit from the country’s focus on sustainability, as consumers and businesses worldwide demand more environmentally responsible products and practices.

By integrating sustainability into their operations, manufacturers can enhance their competitiveness in global markets and align with the growing trend toward eco-friendly production.

With industries ranging from electronics and automotive to rubber and halal food production, Malaysia is well-equipped to meet the growing demand for manufacturing capacity in the region. The influx of FDI, particularly from China, will drive further expansion in the manufacturing property sector, creating new opportunities for growth and development in the years to come.