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This sector has the potential to be a growth driver for the real estate market

After the challenges faced by Malaysia from the Covid-19 pandemic, political uncertainty and a prolonged downturn of the economy, the industrial property sector remains a saving grace of the property market.

The sector continues to shine in the face of adversity, with regional logistics and warehousing as the primary prospects for the property market.

Despite that property transaction figures were propped up by interest in industrial property in 2020, this sector only comprises 1.61% of the total property market, said Rahim and Co International Sdn Bhd real estate agency chief executive officer Siva Shanker.

“This (figure) really is too small,” he said, adding that the property market needs to be restructured to increase the industrial property sector, preferably up to 5%, as it would serve as a huge growth driver for the overall market.

“With the industrial revolution 4.0 (IR4.0) coming on really strong, I think Malaysia has been, to some extent, quite quick to embrace some of these IR4 advances. I think the industrial real estate market has to some extent saved the real estate market,” he said.

Many of the property market transactions last year were from the industrial property sector. Involving considerable sums, big funds started investing into industrial real estate, he said during the virtually held Real Estate Data Analytics Conference II organised by Rehda Institute.

Foreign direct investments

CBRE WTW managing director Foo Gee Jen hopes to see more foreign direct investments coming into the sector. The emergence of demand for personal protective equipment and booming e-commerce activities have generated investments totalling about RM37bil since the start of the pandemic.

“The key thing for warehousing is the connectivity. The places nearer to the highways, airports and ports are the key locations for logistics. In regards to location, it has to be in the suburban area where the e-commerce consumers are located such as the Ulu Klang area and the edge of Nilai, where it is convenient to deliver products to the consumers,” he said during the virtual launch of the CBRE WTW Real Estate Market Outlook Report 2021.

According to the report, the industrial sector gained traction on the rapid uptake of e-commerce, leading to more than RM100bil worth of investments in 2020 and an improved logistics sector and warehouse demand.

Examples of the investments include global technology giant Microsoft, which has a data centre under construction in the 745-acre Kulai Data Exchange (Kidex) in Johor, bringing expectations of more investments into the locality by Microsoft-linked network companies.

Giant oil and gas corporation Shell is said to be relocating its Malaysian headquarters to Kulai as well. Upon full operation in 2023, Kidex is anticipated to generate RM17.5bil in investment value and create 1,600 job opportunities.

The IR 4.0 coming onboard and fast-paced e-commerce will be the main contributors to the demand for industrial real estate.

Savills, in its Asia-Pacific Investment Quarterly report for the first quarter (Q1) of 2021, was also optimistic about the industrial property sector. According to Savills, the major investment transactions in Malaysia grew 53% year-on-year to RM1.46bil in the quarter, spurred mainly by properties within the industrial sub-sector.

Investors taking notice

Siva pointed out that people have started to take notice of industrial real estate because the other sub-sectors, namely residential, office and retail, have been soft for quite a while.

Unlike the other segments, the industrial sub-sector tends to hold steady regardless of the economic climate, he said.

“Because this segment has been holding steady and the others have not, now, the industrial sub-sector is considered sexy and you find a lot of funds chasing it,” he said.

According to Savills, the industrial sub-sector led overall transaction value in Q1, accounting for approximately 48% of the total, followed by commercial transactions at 22%.

In the north, the largest acquisition in the reviewed quarter was by Hartalega Holdings Bhd, which acquired 250 acres of industrial land in the Kota Perdana Special Border Economic Zone, Kedah for RM228.7mil.

Within the Greater Kuala Lumpur area, Savills said one of the largest transactions was UEM Land Bhd’s purchase of 9.3 acres of factory land and buildings thereon from Dutch Lady Milk Industries Bhd in Section 13, Petaling Jaya, Selangor. They were acquired for RM200mil with plans to build a RM1.3bil mixed-use development.

Additionally, Savills noted that Axis REIT (real estate investment trust) had entered into an agreement to acquire 7.5 acres of industrial land and the buildings thereon from FIW Steel Sdn Bhd for RM120mil.

The land is in Bukit Raja, an established industrial location in Shah Alam, Selangor, due to its proximity to Klang port, coupled with good accessibility and infrastructure.

Separately, Axis REIT also acquired two leasehold industrial sites totalling 16.2 acres in Johor for RM75mil. The fund continues to build on its status as the leading player in Malaysia’s rapidly expanding industrial and logistics sector.

According to Rahim and Co’s Research Property Market Review for 2020/2021, the industrial sub-sector is seen as a silver lining amid the pandemic-ridden property market.

“Encouraging growth was seen for the warehousing and logistics segment in 2020 following the boom of e-commerce as the default means of shopping during the movement restriction period.

“Aside from the surge in the glove and face mask manufacturing, the industrial sector had remained relatively stable in demand and the fall in market activities was primarily due to the temporary market freeze. But once it was uplifted, business had resumed or grew better for some,” it said.

Moving forward, Rahim and Co pointed out that warehousing and logistics are expected to continue to be in the limelight.

“A full-facilities industrial park that is professionally managed is the prime choice in industrial property investments, as investors and companies are more diligent in looking at total operations costs of a facility together with manpower management and enhanced productivity, on top of being the best value-for-money offer in the market,” according to the review.

Henry Butcher, in its Malaysia Property Outlook 2021 report, also said the increased demand for warehousing due to the changing landscape for e-commerce as a result of the pandemic will spur the industrial sub-sector in 2021.

“Matured and sought-after areas will remain a popular location for manufacturers or warehouse operators. However, continued political instability and a resurgence of the Covid-19 pandemic may deter foreign, as well as local investors, to set up or expand their businesses in Malaysia,” it said.

The RM1bil allocated under the Industrial Digital Transformation Scheme under Budget 2021 to encourage small and medium enterprises and businesses to digitalise operations and trade channels will encourage the upgrading of companies’ digital capabilities and prepare them for future growth.

With market sentiments propping up industrial properties, the price and value showed a more stable trend across the states, with a downward trend witnessed for terraced factories, according to Napic figures.

News Source: StarProperty / Joseph Wong 7 July 2021

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