Modernising industrial parks

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Opposite the Indahpura housing estate in Kulai, Johor, lies a modern property sales gallery on a sprawling, landscaped field. Many curious people have come in to enquire about whether new condominiums or houses were coming up on the site. The answer often comes as a shock to them.

"Most people could not believe that we were selling factories, warehouses and industrial space," Axis AME IP Sdn Bhd executive director Kelvin Lee tells City & Country.

Johor-based Axis AME is a 50:50 joint venture between AME Group's AME Industrial Park Sdn Bhd and Axis IE Sdn Bhd, a member of the Axis Group, which includes the listed Axis Real Estate Investment Trust (Axis REIT). The other directors of the JV company are Simon Lee, also a director at AME Group, and Axis Group's Datuk Stewart Labrooy and Stephen Tew. Labrooy is also CEO and director of Axis REIT while Tew is a director.

A secured entrance, high enough to accommodate a lorry, and a tall grey building just behind the sales gallery are the only hint of what's coming up at the 200-acre [email protected] development. AME had developed the earlier phases of the industrial park on its own before Axis entered the picture to develop phases 3B and 3C and the adjacent SME City.

The building behind the sales gallery is occupied by HID Global Sdn Bhd, an RFID chip manufacturer. The entire 99,964 sq ft structure, comprising a 1-storey factory with a 2-storey office block, took about 12 months to design, fabricate and assemble on the four-acre site.

This feat is all the more impressive when you consider the precise and exacting nature of high-tech manufacturing such as producing RFID chips, which calls for very detailed work. For instance, all the plug points for their devices must be installed at specific places in the building to minimise the number of cables and machinery running across the floor. Anti-static flooring keeps workers from accidentally damaging the sensitive chips.

Sophisticated businesses such as HID Global are just some of the tenants that Axis AME intends to draw to the industrial park. Some of the tenants planning to move in are food and beverage businesses and precision manufacturing and logistics players.

The RM445 million, 80-acre phases 3B and 3C of i-Park features round-the-clock security, CCTV monitors, an intercommunication system and a diesel generator to run the street lamps and common areas. All these will be maintained by Axis AME, which will charge three sen psf per month.

"As an industrial builder, I noticed that after we hand the properties over to the customers, the environment becomes very run-down. If you visit other sites and ours, you can see that we are totally different. It struck me that the park must be sustainable and have a long-lasting outlook. That's why I came up with the concept of gated and guarded industrial parks with maintenance," explains Lee.

The park's features and its location — surrounded by terraced homes, with an AEON Jusco coming up just a stone's throw away — is a far cry from the stereotypical fume-belching kilang-kilang in the "middle of nowhere".

Labrooy argues that building industrial parks far away in "God knows where", far away from a catchment of people with no particular theme, dooms these industrial parks to failure.

"When it comes to high-tech industries, the first question they ask is where are my workers coming from? Then they ask, where is the public transport?

"We can point across the road and ask them, 'Well, how close do you want your workers to be?' That sends a very strong message to the market that these kinds of locations are important," he says.

In the case of i-Park, not only is it in a township, but it is also just off the Senai-Desaru Highway. The Senai International Airport and Johor Premium Outlets is just a 10-minute drive away. Hospital Kulai, IOI Mall and Palm Resort Golf & Country Club are nearby while beside it is the Kulaijaya district police headquarters.

"You'll find that in small European towns, they fight hard to bring in industries because they bring wealth to the community. Even in other parts of Asia, industrial estates are integrated into townships. We haven't developed this type of thinking yet. Over here, we just leave it to state development corporations. Townships built here do not cater for any industrial component," says Labrooy.

For those industries that need staff accommodation onsite, a hostel that can accommodate up to 5,000 workers is coming up here. So far, Axis AME has received commitments for 750 beds.

SME City

SME City will come up next to [email protected]. The former will be a landed 35-acre commercial development with 83 semi-detached and detached units designed to complement the factories and warehouses here. It will provide ancillary services such as F&B outlets, banks and other related services depending on the businesses there.

The SME City units have built-ups of 5,562 to 14,444 sq ft, all of which have been sold. The GDV of this phase is RM173 million.

"SME City and i-Park are very complementary because they are nestled next to each other. Anybody who moves to SME City knows they have 200 acres (the entire i-Park) worth of industries to cater for. And it's not just any old kilang-kilang moving in, these are high-tech industries in food, RFID stuff, sophisticated manufacturing. With that, we have a different type of client which wants to take on support roles here, be they stockists or service providers. We believe they will have a lot of business," says Labrooy.

The skyrocketing prices of industrial land have proven to be a stumbling block for industrial park developers in providing products for end-users, let alone building them in population catchments, says Labrooy.

"We have land that is expensive and empty. But empty land does not produce wealth. It might be priced at RM800 psf, but it's worth zip as far as I am concerned. However, the moment you put a factory on it, you create jobs, you create value.

"So when you talk about global competitiveness, you cannot look at industrial land as a property play. Industrial land has to be a nation-building play and be treated as such. If people are going to seriously build industrial parks, the land should be allocated by local authorities on a joint-venture basis for it to be developed and sold to end-users that can bring value to communities and townships," he argues.

Labrooy says that in Germany, industrial land prices are set at RM20 psf to attract industries. He suggests that state agencies adopt this measure and only sell land to developers with clear plans to bring end-users to the park. This is one way of bringing foreign direct investments (FDI) into the state, he adds.

[email protected] is the second such development by the AME group. The other i-Park lies in the Southern Industrial and Logistics Clusters (SiLC) park in UEM Land Holdings Bhd's Nusajaya.

At 12 acres, AME's park in Nusajaya comprises 19 factories, of which 14 are semi-detached units with land areas of 85ft by 231ft and built-ups of 12,785 sq ft. The larger semidees have built-ups of 19,018 sq ft. The lone detached factory has a land area of 176ft by 214ft and a built-up of 21,281 sq ft. All the units have been taken up.

Also coming up in SiLC is Nusajaya Square, also by AME, the only commercial centre in the sprawling 1,307.31-acre park. Just like SME City at Indahpura, Nusajaya Square will cater for the factories and townships within the larger industrial park, the population of which is estimated at around 16,000 and 60,000 respectively.

The development comprises 106 units of 3-storey shopoffices and 4-storey shop offices, with sizes from 4,456 to 14,417 sq ft and priced from over RM1 million.

By 2014, Axis REIT plans to inject some of the larger buildings that will come up on a 50-acre tract known as phase 3C.

"It is here that we are planning to offer opportunities to key logistics players to set up large distribution centres built to international standards to service both Singapore and Johor. A 50-acre site could yield up to 1.25 million sq ft of grade A logistics space with a potential market value of RM200 million to RM250 million, which will be offered to Axis REIT as a potential acquisition target for the fund," says Labrooy.

As at April 22, the REIT's portfolio comprised 31 properties worth RM1.5 billion. Of these, about nine of the properties are commercial/office types, 12 are warehouse/logistics types and one is a light industry type. Four of these properties are in Johor. The REIT reportedly has RM444 million worth of properties in Johor, Shah Alam and Klang under negotiations.

AME, with over two decades' experience in industrial development, boasts a revenue of RM1 billion to date. The group has built more than 200 industrial properties for companies in the food and beverage, electronic and consumer products, warehousing and logistics, and research and development sectors. Some of its clients are Seagate (M) Sdn Bhd, Yoko Food Industries, BMW, Nippon Express, Komag, Prent Malaysia, Dyson (M) Sdn Bhd and Southern Lion Sdn Bhd.

Besides building properties, AME provides M&E and IT services as well as steel structure fabrication. Besides the i-Park industrial estates, AME will also build District [email protected], which featured six 1-storey detached industrial buildings with 3-storey office blocks.

The developer's expansion plans are being thwarted by a spike in industrial land prices. Thus, it is actively talking to industry players, end-users and global real estate agencies such as CB Richard Ellis to look for potential joint-venture partners.

Outlook

According to KGV International Property Consultants Sdn Bhd director Samuel Tan, vacant industrial parcels with local infrastructure such as roads are priced anywhere from RM25 to RM65 psf, depending on the location, while completed factories are priced from RM280 to RM360 psf, subject to their design, specifications and location. "Depending on the location, the price increase over the last five years can range from 40% to almost double in popular areas," he says.

Giving a brief overview, Tan says many Singaporean SMEs moved in during the 1980s, followed by multinational corporations involved in the electrical and electronic (E&E) sector. "In fact, traditionally, the industrial drivers for Johor have been E&E, argriculture and food processing, chemicals and oleo-chemicals."

The 1990s saw logistics, warehousing and other value-added factories emerge due to more efficient and planned industrial schemes such as the newer part of Pasir Gudang Industrial Park, Senai Industrial Estate 1 to 4, Tebrau Industrial Estate 1 to 4 and Johor Technology Park.

Meanwhile, privately developed parks such as Taman Perindustrial Cemelang, Taman Perindustrian Senai Murni, Taman Perindustrian Berjaya and Senai Industrial Park offered better designs to entice local and Singaporean SMEs.

"In the 2000s, more contemporary developments such as SiLC under Nusajaya, i-Park, Setia Biz Park 1 and 2 and other private schemes were developed in line with the demand at Iskandar Malaysia. Many of these are gated and guarded schemes," Tan says.

He notes that developers are now more willing to customise factories to suit customers. Warehouses received a boost from the growth of logistics due to the development of the Tanjung Pelepas and Johor ports.

In terms of products, the authorities are placing emphasis on capital and technology-intensive rather than human-intensive plants. Soon we will be seeing bio-technology plants at SiLC as well as other advanced technologies, especially in the Nusajaya area.

Tan feels that there is further upside for the industrial market. One indication is the Malaysian and Singapore governments setting up an industrial working committee to take advantage of their respective synergies. This is especially relevant because of rising land and labour prices in Singapore, which has prompted Singaporean SMEs to expand to Iskandar Malaysia.

"In fact, late last year, the Ascendas Group from Singapore entered into a joint-venture business park project in Nusajaya. It is a clear testimony of the prospects of Iskandar Malaysia's industrial market."

This story first appeared in The Edge weekly edition of May 6 - 12, 2013.