Demand for larger industrial properties remains buoyant

With the growth in e-commerce and logistics, larger industrial spaces are in demand.

The industrial subsector is bucking the trend of the rest of the real estate market, and is expected to remain stable despite the uncertainties ahead.

According to the findings of a market survey in June by KGV International Property Consultants (M) Sdn Bhd on Behavioural Patterns of Industrial Property investors post-MCO, the industrial business environment is expected to recover in six months to two years.

“Although we have already seen some recovery in the third quarter, it will take awhile before we get back to normal because the second quarter has taken a beating, with Covid-19 and the Movement Control Order (MCO). The entire property market has gone soft,” Rahim & Co International Sdn Bhd real estate agency CEO Siva Shanker told Property Advisor.

Despite the volatility, he said the industrial market has held steady.

“That is mainly due to the simple factor of supply and demand. There is a lot of speculation in other sectors, such as the residential sector where there is an overhang, and office space with its oversupply situation.

“But the industrial sector is as close to equilibrium as it can get, which means supply and demand are close to meeting.

“Of course, it is physically and economically impossible to meet but there are fewer speculators in the industrial sector.”

What speculation there is, he said, tends to be in terraced or semi-detached factories that are being built to sell. These units are generally 10,000 sq ft in size and below.

“People are buying, hoping to rent them out or flip them after completion. That sector has somewhat more supply than demand.”

Due to the growth of the e-commerce and logistics warehousing sectors, Siva said larger units in the industrial sub-sector are in demand.

“To a large extent, the industrial sector has done well and, because of Covid-19 and the MCO, the rise in online shopping has increased the demand for warehousing and storage. The space for logistics has grown exponentially.

“Where the demand used to be for 20,000 to 50,000 sq ft of space, it has now grown to demand for hundreds of thousands of square feet. And there is very little supply. If someone wants 300,000 sq ft, it is hard to find and it can take six months to a year to build.”

In general, he said users of larger industrial spaces do not give up their tenancies so easily.

“Moving is not easy for big operations, especially manufacturing companies, which can have millions of ringgit worth of machinery.”

According to CBRE | WTW, Malaysia has the second-highest e-commerce penetration rate in the region.

“The e-commerce base will certainly expand over time, in tandem with the increasing adoption of IT in everyday life and growing technological knowledge among Malaysians.

“These drivers are expected to remain the integral support for domestic logistics activities, with some, such as e-commerce and third-party logistics, looking very promising.

“Parallel to that, the industrial property market has seen the rapid emergence of warehousing in recent years,” it said.

According to KGV International’s survey, most respondents preferred detached factories (41%), followed by 30.5% who said semi-detached factories were their preferred choice.

Most respondents (62%) preferred 1 1/2-storey factory units, a trend which is already reflected in the current market supply.

“This is consistent with what we see in most industrial schemes, where most factory units offer a ground-level operations or warehouse space at the back and a double-storey office annexe at the front,” it said.

This article was written by Sharina Ahmad of PropertyAdvisor.my, Malaysia’s most comprehensive source of property data, property analytics and insights.