Rising interest in industrial properties
The industrial property market is not usually on the average property investor’s radar screen, and for good reason — it requires familiarity with the different markets that different types of industrial properties serve.
Its niche position is reflected in its relatively small volume of transactions. In 1H2010, industrial properties accounted for only 2.5%, or about 8,000, of the transactions on the property market while the total supply of industrial properties in 2009 stood at 92,416, according to the Property Market First Half 2010 Report released by the National Property Information Centre (Napic).
Nevertheless, it is interesting to note that the volume of transactions grew 29.3% to 4,648 in 1H2010 from 3,596 in 1H2009. Even more remarkable was the fact that the value of transactions jumped 44% to RM4.4 billion from RM3.6 billion in 1H2009.
The most popular properties transacted were the terraced factory/warehouse types, with 1,548 transactions (33.3%), which were valued at RM539.2 million. This was followed by vacant industrial plots, with 1,477 transactions or 31.8% of market volume, says Napic.
Selangor and Johor saw the highest number of transactions in the country — 1,399 and 827 respectively, having grown 15% and 83% from 1H2009.
Industry observers note a jump in the value of industrial properties over the past two years.
KGV-Lambert Smith Hampton Sdn Bhd director Anthony Chua says the prices of industrial properties in the Klang Valley appreciated by 15% to 30% last year, depending on the location.
“The price movements were due to growth in the local industries and expansion among the small and medium enterprises (SMEs), in particular the services sector,” he adds.
“There is still some upside for the industrial property sector, given the currently strong economy and recovery in the country’s foreign direct investment (FDI). However, industrial properties tend to be for owner usage. But of late, investors have been picking up industrial properties for rental purposes. Industrial premises located near active commercial areas or near highways generally do well. The two most favoured property types are terraced factories/warehouses and vacant industrial land.”
VPC Alliance (Malaysia) Sdn Bhd director James Wong, citing Napic, says that in 2009 and 2010, vacant industrial land in areas like Balakong, Bukit Jelutong, Glenmarie, Kota Kemuning and Section 23, Shah Alam, saw price increases of 11.1% to 29.4%.
Prices of industrial real estate range from RM50 psf in Balakong to RM110 psf in Glenmarie, representing 40% to 100% growth in value over five years.
“Owing to limited supply and as the recession was over, there were substantial price increases in 2010,” says Wong, who had presented these facts earlier in January at the Fourth Malaysian Property Summit.
According to Napic, the prices of 1½-storey link factories with a built-up of 1,584 sq ft and land area of 1,100 sq ft averaged RM441,133 in the Bukit Jalil Integrated Business Park in Kuala Lumpur in 1H2010, representing an average price difference of 13.1% from January to June last year.
The same type of factories are priced around RM350,000 in Maju Jaya Industrial Park (up 8%) and RM500,000 in Kawasan Perindustrian Taman Ehsan (up 11%) while a 2-storey link factory in Taman Industri SP Jaya Sungai Buloh has an average price of RM520,000 (up 18.3%).
Prime industrial areas in the Klang Valley are also seeing higher rents — Bukit Jelutong Industrial Park: RM1.60 to RM1.80 psf; Glenmarie Industrial Park: RM1.50 to RM1.70 psf; Shah Alam: RM1.20 to RM1.30 psf; and Port Klang: RM1 psf.
Wong says yields for the newer generation of industrial properties — the semi-detached or individual types with updated façades, larger land areas and gated and guarded schemes — have yields of 6% to 7% compared with an average of 3.5% to 5% for shopoffices.
He notes a revival of interest in Penang’s industrial market with the expansion of major multinationals such as B Braun Medical Industries and Plexus Manufacturing. This drove up the price of leasehold land to a record RM50 psf last year from RM30 psf previously.
Wong says the remaining supply of industrial land on the mainland is in Bukit Minyak Industrial Park in Permatang Pauh, where selling prices are RM12.20 to RM18 psf.
Hectares and Stratas Sdn Bhd managing director Stephen Tew says the growth in industrial properties in prime areas such as Temasya Industrial Park, Bukit Jelutong and Petaling Jaya was around 50% to 60% in the last two years — due to pent-up demand from SMEs — after remaining flat in the last 15 years.
He says the products in the market now, which increasingly cater for SMEs, are a reflection of the drop in FDI experienced in 2009 — FDI plunged 81% to US$1.4 billion (RM4.2 billion) in 2009 from US$7.3 billion a year ago before recovering to US$7 billion in 2010.
“There is a genuine need for these products in the market and some developers have had the foresight to meet this need,” observes Tew, who is also a director of Axis REIT Managers Bhd, which manages the office and industrial-centric portfolio of Axis REIT.
In the absence of FDI and with the multinationals pulling out of the market, local tenants have moved in to fill the void, causing yields to compress to 5% across the board, he says.
“Foreign companies are generally more willing to pay higher rent. They pay the market price as they do not have the objective to own. As for the locals, if rents get too high, they would rather buy [the property].”
KGV-Lambert’s Chua says industrial properties these days have more contemporary façades. Features include lifts, glass walls, wider roads, underground cabling and even gated and guarded schemes.
VPC Alliance’s Wong notes that more property developers are jumping onto the bandwagon as demand increases for these new-generation industrial properties built for multiple uses.
“Although the industrial property market is a subsector, many developers are venturing into it, building semidee factories and super links that are designed not only for light manufacturing and warehousing, but also for showrooms and offices.
“In view of the high prices of shopoffices in Kuala Lumpur, many buyers are buying this new generation of semidee factories as an alternative. Of course, these come with bigger land areas than shopoffices,” he says.
The going rate for a regular 4,500 sq ft, 3-storey shophouse in Kota Damansara is RM3.5 million but for the same price, investors can purchase a contemporary industrial unit with a bigger built-up, land area and parking space within a gated and guarded scheme, he adds.
Observes Wong: “Developers that have ventured into such industrial developments have derived good profits.”
Examples are Tangkas Arena in USJ by Tangkas Properties Sdn Bhd, a unit of Mudahjuta Industries Sdn Bhd; Surian Industrial Park in Kota Damansara by Paramount Corp Bhd’s unit Supreme Essence Sdn Bhd; Sunsuria Technology Centre in Kota Damansara by Sunsuria Group; [email protected] Jelutong by Mah Sing Group Bhd; and Nouvelle Industrial Park by Exsim Group.
DevelopersExsim Group marketing director Michael Yam says the group started building industrial properties because it saw an opportunity to cater for the commercial businesses in Kota Damansara. Its maiden offering — the Nouvelle Industrial Park — was launched in the area in January 2009.
The group also saw the availability of industrial land in Kota Damansara which could not be converted for commercial use. It felt that its factories would be an alternative to the RM3 million shoplots in the area, says Yam.
The park, which has a gross development value of RM70 million, comprises four acres of freehold land and boasts 21 units of 3-storey semidee factories. Land areas range from 9,813 to 10,187 sq ft while built-ups are from 5,502 to 5,602 sq ft. The prices start at RM3.19 million.
The semidee factories were fully taken up, which prompted Exsim to develop another three industrial parks — two in Kota Damansara and the third in Bukit Rimau, Shah Alam. All these projects are also sold out.
Mah Sing group managing director Tan Sri Leong Hoy Kum says the group got into the industrial market in 1995 with the launch of its 300-acre Mah Sing Industrial Park in Sungai Buloh, which was sold out. It launched its initial [email protected] Jelutong in January 2010 as it saw pent-up demand for 3-storey semidee factories.
“Our research shows that semidee factories currently make up less than 10% of the total supply of industrial units in the Klang Valley. This is why our i-Parc series, which is in strategic locations, has done very well as it caters for market demand.
“Our buyers are mainly local companies looking to integrate their corporate headquarters into operations and warehousing facilities and those looking to upgrade to better facilities, as well as multinational corporations from various industries that see the commercial potential of i-Parc,” says Leong.
i-Parc sits on 12.9 acres of freehold land and has a GDV of RM116 million. It comprises 42 units of 3-storey semidee factories with built-ups of 5,400 to 7,300 sq ft. Prices start from RM2.4 million.
With i-Parc selling out within six months of its launch, Mah Sing went on to develop [email protected] Alam and [email protected] Jelutong, with the former achieving a take-up rate of 90%. The latter has been slated for launch in 1Q2011 and is aimed at tapping the spillover from the first i-Parc, says Leong.
VPC Alliance’s Wong says developers would do well to serve the SME market and halal parks. The SME sector, which contributed 31.2% to GDP in 2009, is “neglected”, he says, adding that many SMEs are located in illegal buildings and squatter areas.
“Private developers should develop parks for similar SME industries to group them together, such as shoe SMEs, with amenities such as a common canteen, food courts and also housing for the workers,” he suggests.
Wong says halal parks have the potential to serve the halal industry, which has attracted RM4.8 billion of investment in the eight halal parks in the country — Selangor Halal Hub and Port Klang Free Zone (PKFZ) Halal Flagship Zone in Pulau Indah; Melaka Halal Park in Serkam; [email protected] in Nilai; Tanjung Manis Halal Hub; Pedas Halal Hub; Kelantan Halal Park in Pengkalan Chepa; and Penang Halal Park in Bulatan Minyak, according to figures provided by Halal Industry Development Corporation Malaysia, which hopes to attract RM2 billion in investment this year.
As Malaysia is a Muslim country and is part of a community of over a billion Muslims worldwide, Wong feels there is potential in this market.
Other promising areas are the import and export sectors. Hectares and Stratas’ Tew predicts that the market will shift towards logistics and warehouses that cater for these sectors as output in the manufacturing sector has declined.
On the outlook for industrial property, Wong is optimistic. “With the Economic Transformation Programme, the recovery of the economy and the march towards developed nation status in 2020, plus the shortage of industrial land in Selangor, the Federal Territory and Penang, the outlook for the industrial market in the near term looks promising compared with other sectors with oversupply.”
Tew, meanwhile, says investors can expect a slight growth in values going forward, although not up to levels of 30% to 40%.
This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 847, Feb 28-Mar 6, 2011
City&Country: Cover Story-- Growing Demand
Rising interest in industrial properties