KUALA LUMPUR: Opportunities for industrial estate in Asia Pacific is rife, and in Malaysia, this is not an exception. The growth of the logistic industry, which was spurred by the Covid-19 pandemic and supported by port infrastructure, has increased the demand for this property segment.
Knight Frank's latest report New Frontiers – Regions of Opportunities: Infrastructure Impact on Industrial and E-Commerce and Supply Chain Evolution’s Impact on Industrial real estate highlighted this sharp trend. According to the independent global property consultancy, the pandemic will leave a lasting impression on the commercial real estate sector across Asia-Pacific.
While the Covid-19 pandemic brought more pain to the already battered retail sector, wind has been added into the sails of the industrial sector via the flourishing e-commerce industry. Many business-to-consumer firms were forced to adapt quickly as lockdowns and movement restrictions in many markets prompted a huge shift to online retail activity. Much of this activity will remain permanent going forward and result in higher online retail sales growth and penetration across the region, regardless of market maturity.
Knight Frank Malaysia capital markets executive director Allan Sim said the pandemic had accelerated the adoption of online retailing across selected key markets in Asia-Pacific, with the average online penetration growth estimated at 14% in 2020.
Malaysia’s online retail growth was 17% during the year, the third-highest among the 11 countries reviewed by Knight Frank (see table). However, this translates to the country's online penetration of only 5%, hence, there is much potential for further growth.
“We observed notable MNCs (multinational corporations) choosing Malaysia as the location for their regional distribution centres (RDC) in the likes of Ikea Asean RDC, Zalora Regional E-Fulfilment Hub, Lazada E-commerce RDC, Nestle DC, BMW Regional Parts DC, VW Regional Aftersales and Parts DC, Bosch RDC and Broadcom Global DC,” said Sim.
He added that well-developed infrastructures like road and rail networks, port facilities and utilities such as water, electricity and internet connection were important for e-commerce activities.
Concerted efforts by the government and various stakeholders in maintaining the competitiveness of Port Klang, the largest port in the country, as a supply chain platform has placed Klang on the radar of many developers, manufacturers and investors.
Malaysia tops the Asean region with US$250mil (RM1.01bil) spent on transport infrastructure investments per million capita over the past two decades. One key driver behind Malaysia’s lead is the East Coast Rail Link (ECRL) project, which will connect the main port of Klang on the Straits of Melaka to Kota Bharu in the northeast of the peninsular.
Malaysia has attracted over 78% of the top 50 global logistics players to set their footprints in the country. Earlier, the Knight Frank Malaysia’s Real Estate Highlights 2H2020 had reported that during the review period, Klang Municipal Council received a surge in applications for development planning of industrial projects.
Circa 38.9% of the applications were for new standalone factories on pockets of land, followed by 29.9% of applications for the legalisation of unlicensed factories under Program Pemutihan, 26% for extension or amendment to existing premises and the remaining 5.2% for new built-to-sell factories.
Similar to Klang Valley, Johor also benefited from the rapid growth of e-commerce. With import and export activities between countries becoming more significant, Johor Port recently announced a breakthrough of over 1 million twenty-foot equivalent units (TEUs) for 2020 and remains optimistic of its future prospects.
Knight Frank Johor director Debbie Choy said Johor was also observed to be the choice of automakers in housing their regional distribution centres (RDC). BMW has set up its RDC on 58 acres of land in the Free Industrial Zone of Senai International Airport while Volkswagen has set up a 538,196 sq ft facility in the Port of Tanjung Pelepas.
“Johor is often referred to as a strong competitor to Singapore given the more economical prices and friendlier exchange rates. However, response time along with transparency in requirements are often a concern for investors and operators, thus, on-going efforts by relevant stakeholders in improving and streamlining processes in these aspects will prove to show better results in the coming years,” she said.
In 2020, Penang industrial property market saw active activities compared to others. Penang remains on track in attracting investment from both local and foreign companies. The setting up of US-based Dexcom Inc and Ultra Clean Holdings Inc’s first facilities in Penang is proof that the state has a strong industrial ecosystem.
Knight Frank Penang executive director Mark Saw said, “We are excited to see the North Butterworth Container Terminal (NBCT) being gazetted as a free trade zone starting February 2021.”
He added that such a move will elevate Penang from being the manufacturing base for the electrical and electronics industry as the NBCT will be able to cater to the warehousing and logistics needs of local and global players.
Knight Frank Malaysia deputy managing director Keith Ooi said the industrial market in Malaysia has seen steady growth in recent years. This is largely due to the higher e-commerce penetration rate resulting in additional warehousing space requirements to meet the surge in last-mile delivery as well as the structural shift towards omni-channel retailing.
Going forward, prime industrial asset values are expected to rise over the near term, particularly in well-planned secondary industrial locations such as Klang. This is attributed to the rapid growth and spillover demand for prime grade industrial space from its neighbouring locality of Shah Alam, where land and property prices are predominantly higher compared to secondary industrial locations. With the low interest rate environment, yields are expected to remain at low levels. Typically, prime grade industrial assets with strong tenant covenants coupled with good accessibility will better weather future headwinds.