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Industrial Space Big Business, Thanks To e-Commerce

Industrial Space Big Business, Thanks To e-Commerce

03 Oct 2020

Even as the Covid-19 pandemic continues to wreak havoc on economies everywhere, demand for industrial space has remained steady, if not improved. Other sub-segments within the property market, however, have been less than stellar.

One property analyst attributes it to the expansion of e-commerce during the pandemic. This has, in turn, has spurred demand for warehouses and distribution centres.

“In Malaysia, for instance, during the initial stages of the movement control order (MCO) when interstate travel was restricted, a lot of businesses faced supply chain disruptions, especially when their warehouses or distribution hubs were few and far between or located in different states.

“Coming out of the MCO, a lot of logistics companies have realised the importance of having multiple distribution centres to avoid disruptions in the event of another lockdown in the future.”

According to the National Property Information Centre (Napic), the industrial sub-sector recorded 1,980 transactions worth RM5.41bil in the first half of 2020.

“Prices of industrial property showed a more stable trend across the states with downward trend witnessed for terraced factory. In Selangor, single storey and one-and-a-half storey terraced dropped by 2.1% to 18%.”

Knight Frank Malaysia capital markets executive director Allan Sim says the Klang Valley remains attractive in terms of warehouse rental competitiveness.

“With our integrated ecosystem of accessible skilled labour and talent as well as investor-friendly policies with favourable tax structures and attractive government incentives, Malaysia has a competitive advantage over its neighbours in attracting multinational businesses that are diversifying their global supply chains and manufacturing operations to the region.”

Additionally, Sim says, multinational corporations (MNCs) have been looking to diversify their supply chains out of China over the past few years due to the growing trade tensions between the US and China, as well as rising labour cost in China.

“More recently, the unprecedented disruptions arising from the Covid-19 pandemic further highlighted the risk of being over-reliant in managing and operating supply chain out of a single country – China.

“For many MNCs, the pandemic has become the deciding factor to adopt the ‘China plus One’ approach to supply chain management, by diversifying portions of the supply chain to other regional countries while maintaining higher value manufacturing operations in China with the adoption of digital transformation and automation.”

He adds that Asean countries are the immediate beneficiaries of this “supply chain redesign.”

Sim also says the various incentives unveiled under the RM35bil short-term Economic Recovery Plan will help encourage more foreign direct investment flows.

“There is a generous tax holiday period of up to 15 years for foreign companies making new investments in the manufacturing sector with capital investments of RM500mil and above.

“This, coupled with the fast track approval mechanism for manufacturing licences and tax incentives with the establishment of the Project Acceleration and Coordination (PACU) in the Malaysian Investment Development Authority, will help to raise the country’s attractiveness in the eyes of foreign investors.”

With these incentives, and the country’s competitive real estate and labour costs, Sim says Malaysia will be positioned as one of the main beneficiaries in Asean to capture the shoring of manufacturing and supply chain operations during the restructuring of global supply chains.

“We will also likely to witness a positive spillover effect in other segments of the industrial property market, predominantly in larger purpose-built factories, large tracts of industrial land, with the potential entry and relocation of new global industrial players, ” says Sim.

At the 2020 National Housing and Property Summit, Alpha REIT Managers chairman Datuk Stewart LaBrooy said the pandemic would change buying habits for industrial space.

“During the lockdown, everyone bought things online. Even people who never used e-commerce before have now become addicted to it. E-commerce transactions spiked nearly 40% during the first three months of the lockdown.”

He notes that companies around the world learnt a very valuable lesson about not centralising their supply chains during the global lockdown.

“They have learnt that by centralising just one supply in China, they were very badly compromised in terms of keeping their businesses going. But when all is said and done, global supply will still exceed global demand over time.

“In terms of the sector, the industrial space is booming. I’m not talking about the semi-D or terrace units. It is the 20,30 or 50-acre sites that are in high demand.”

Compared with the first half of 2019, Napic says market activity within the industrial sub-sector decreased by 36.9% in volume and 23% in value in the first half of this year.

“Selangor continued to dominate the market with 34.3% of the nation’s volume, followed by Johor and Sarawak, each with 12.7% and 10.5% market share, respectively.”

By state, Johor held most of the overhang, with a 42.6% share. By type, terraced units formed the bulk of the overhang (41.6%), followed by semi-detached (36.8%).

On the construction front, Napic says the industrial sub-sector remained on a low tone as completion, starts and new planned supply declined.

“Completions were down by 47.4% to 159 units (first half 2019: 302 units). Starts and new planned supply declined by 20.4% and 59.9% to 292 units and 138 units, respectively.

“As at end-June 2020, there were 117,526 existing industrial units, slightly more than 4,000 units in the incoming supply and slightly more than 7,000 units in the planned supply.”

Source: The Star Posted on : 03 October 2020