PETALING JAYA: The industrial sector is expected to become more specialised as occupiers focus on operational efficiency, automation and supply chain resilience, while navigating a growing supply of space, shifting global trade policies, geopolitical uncertainties and changing market conditions.
Rahim & Co International Sdn Bhd senior director of real estate agency, Siva Shanker, said the industrial sector has been doing well this year and “seems to be the hottest segment” at the moment.
“The industrial market is operating near equilibrium, with demand broadly matching available supply,” he told StarBiz.
According to Knight Frank in its Real Estate Highlights report for the first half of financial year 2026 (1H26), the local industrial sector continued to perform steadily during the period under review, supported by expanding manufacturing output, higher electricity consumption and sustained cross-border trade activity.
“Total approved private investment remained broadly stable year-on-year (y-o-y), with domestic capital commitments recording a notable increase even as foreign investment moderated from an elevated prior-year base.
“Within manufacturing, investment was spread across a wider range of projects and industries compared to the first quarter of financial year 2025 (1Q25), reflecting broader participation rather than concentration in a small number of high-value commitments.”
Knight Frank noted that the purchasing managers’ index returned above the expansion threshold of 50 in June 2026, indicating a modest improvement in manufacturing activity.
“However, manufacturers remained cautious as global trade policies, geopolitical developments and external market conditions continue to evolve.”
According to Knight Frank, the Klang Valley’s industrial market remained supported by steady manufacturing activity and trade flows during the early part of 2026.
“In 1Q26, the region recorded approximately RM4.8bil in approved manufacturing investments across 134 projects, accounting for around 20% of national manufacturing investment value and 27% of all approved manufacturing projects nationwide. While investment value remained below the levels achieved in some competing states, the high number of project approvals suggests continued participation from a broad range of manufacturers across multiple industries.”
Meanwhile, Johor’s industrial market maintained its positive momentum in 1Q26, with transaction volumes increasing marginally by 0.8% y-o-y to 356 transactions.
“However, total transaction values rose significantly by 33.1% y-o-y to RM2.5bil. The stronger growth in transaction value relative to volume suggests continued demand for larger-scale and higher-value industrial assets during the quarter.”
Penang’s industrial property market in 1Q26, meanwhile, recorded stronger transaction activity, with transaction volume increasing 19% y-o-y from 100 units to 119 units.
“Growth was broad-based across most districts, led by Barat Daya which recorded a 100% increase in transaction volume. Seberang Perai Utara and Seberang Perai Selatan also registered strong growth of 69.6% and 81.8% respectively, while Timur Laut recorded a modest increase of 14.3%.
“Seberang Perai Tengah was the only district to record a decline, with transaction volume easing by 20% during the quarter,” said Knight Frank.
Rahim & Co’s Siva acknowledged that the Malaysian industrial sector has been attracting plenty of interest.
“Given the heightened interest in industrial real estate over the past few years, the question we need to ask is whether we are heading towards an oversupply situation?
“When you look at the other property segments, the office market remains oversupplied, the residential sector continues to grapple with an overhang, while in retail, only the well-established malls are performing well.”
Siva noted that, for now, the industrial sector remains broadly balanced and is not in an oversupply situation. “However, if we continue to build and build, then I don’t think demand can fulfill the supply.
“Once we move away from the equilibrium, the impact will be the same as for the other segments – it will lead to an oversupply and the sector will suffer.”
For the near term, Siva said the industrial sector is looking positive.
“We expect growth going forward to be organic and progressive. We saw a huge jump in demand during Covid-19, but that was a one-off scenario.”
He added that the industrial segment has become the “darling of the data centre (DC) industry”. “However, caution is warranted. There is a growing perception that anyone with large parcels of land can build a DC. But developing one is far more complex than building a row of shoplots.”
A property analyst said DCs can have significant implications for the surrounding environment and local community, emphasising that this is why site selection and infrastructure planning are critical.
“Electricity and water are among the biggest infrastructure considerations when developing DCs, particularly large artificial intelligence (AI)-focused facilities.
“As demand for digital infrastructure accelerates, these issues have become increasingly important for governments, utilities and developers.”
He said electricity is typically the primary concern. “DCs require large and reliable power supplies to operate around the clock, with AI facilities consuming significantly more electricity than traditional DCs due to the intensive computing power needed to run graphics processing units.
“As a result, developers must ensure adequate grid capacity, reliable power supply and timely access to substations and transmission infrastructure. Increasingly, operators are also seeking access to renewable energy to meet sustainability goals and reduce their carbon footprint.”
He added that water is another key consideration, as it is widely used to cool servers and prevent overheating.
“Depending on the cooling system employed, DCs can consume substantial amounts of water, raising concerns about resource availability, particularly in regions prone to water stress.
“To address this, many operators are adopting more sustainable cooling technologies, including closed-loop water systems, air cooling and liquid cooling solutions that improve efficiency while reducing water consumption.”
In Malaysia, where Johor has emerged as a major DC hub, both electricity and water availability have become important factors in attracting new investments, noted another analyst.
“Ensuring sufficient power infrastructure and sustainable water resources will be crucial to supporting continued growth in the sector without placing undue strain on existing communities and industries.”
Siva said developers seeking to establish a presence in the industrial sector should adopt a build-to-suit approach, rather than earmarking thousands of acres for an industrial park.
“Many developers are willing to take the risk by building first and hoping tenants will follow. That is a risky strategy.
“If we keep going like this, we will be in trouble. But we’re not there yet.”
According to Siva, sustainable growth in the industrial segment must be underpinned by strong fundamentals.
“Instead of building an industrial park and waiting for tenants to come, developers should reverse the process.
“Secure tenants first—particularly from land-constrained markets such as Singapore and Hong Kong, as well as more distant markets like the US and Europe—and then build to meet their requirements.”
Siva said Malaysia offers strong investment opportunities for foreign investors seeking to invest in industrial real estate.
“We have the location, the land and relatively lower infrastructure costs. If we capitalise on these advantages, the industrial sector will do well.
“The relevant organisations should champion this agenda, and Malaysia can become the industrial powerhouse of Asean.”
