As investment trend in Malaysia evolve, some investors are now playing a different game in property investment known as industrial property investment. This type of investment has a high entry barrier as compared to the rest of the investment portfolio. In the said circumstances, there are only limited investors involved. Notwithstanding the high entry barrier, this type of investment give rise to a stable and lucrative rental yields in comparison to agricultural or residential property or even commercial properties (i.e shoplots/ offices). Industrial property consist of factories, warehouses, offices with warehouses and distribution/logistic centres.
Good tenant profile
Tenants of industry properties normally consists of local and foreign manufacturers, industrialist and corporate bodies. Real estate agents would agree that the aforesaid categories of tenants are decisive and not fickle minded. Majority of the aforesaid categories of tenants will only contact the landlord or their agent if they are seriously interested in the property. The aforesaid categories of tenant would normally uphold and comply with the terms and conditions of the tenancy until its expiry. Most of the tenants stay for long term and seek to have the option to renew the contract at the end of the period of tenancy for an additional period of 2 to 3 years. One very important factor is that these tenants have deep pockets and do pay the rent promptly.
Stable rental income
Unlike commercial shoplots and residential units, the moving cost for tenants of industrial zones are relatively high. Once manufacturers, distributors and logistic companies find a suitable place to rent, for example a suitable factory to manufacture and store goods, they will have to invest a huge sum of money to start operating in that specific area such as obtaining the relevant licenses, permit and approval for production/storage/operation from the relevant authorities, registration for water and electricity supply, renovation of the factory and installation of the machinery (if any). They may move out if they are forced to but most of the time they will stay on despite reasonable rental increment due to the extreme high cost of moving out such as moving charges for heavy machineries, renovation of the new location and installation charges. As mentioned earlier, most tenants will exercise to renew the contract at the end of the tenancy agreement.
Industrial land are scarce
In Malaysia, the land that is available in the market has been pre-planned by the State Authorities for different purposes and are categorised into different zones with the most common being agriculture, residential and commercial zones. Out of all these zones, the industrial zone is the least available in the market. Scarce industrial land is due to the fact that industrial properties are normally allocated away from the cities and close to ports to restrict the amount of pollution arising from the factories, warehouses and distribution centres. Nevertheless, State Authorities are now allocating more land to use as industrial zones to attract national and international companies to invest in Malaysia.
High capital appreciation
Malaysia’s economy has performed better in the first quarter of 2016 with manufacturing activities growing by 4.5% in comparison to the fourth quarter of 2015. The growth was fuelled by the demand of foreign countries for Malaysian manufactured goods in view of the depreciation of the Ringgit, the lower cost of doing business and relatively cheap labour cost in Malaysia. This in turn leads to a demand for industrial land and industrial properties. The state government in Perak has earmarked a further 16 hectare plot of land to be turned into an industrial park to meet the demand for bigger local and international companies. Iskandar Malaysia is set to have an oncoming supply of industrial land use in the near future.
High profile investors
Investors in industrial property normally have steady availability of capital and huge cash flow in view that the entry price of the factory usually cost a couple of million in comparison to condominiums and shop lots. Hence, most investors have very high holding power. In other words, they will not easily dispose of the property at low prices in bad times to suppress the property market.
How do we determine a good industrial property to invest?
Location is the one most important element in property investment. For factory and warehouses, the location of the property would also involve the haulage cost, which is the cost undertaken by trucks and lorries in transporting the goods from the ports to the industrial property and vice versa. The haulage is calculated based on the proximity to the sea port or airport depending on the mode of transportation by sea or by air. Hence it is important that the factory should be close to the airport or the sea port. As such, Klang and Penang are good for investment.
Semi-detached factory / warehouses
Just as there is terrace, semi-detached and bungalow houses for residential property, there are also terrace, semi-detached and bungalow factory / warehouses. Two decades ago, many manufacturers operated in terrace factories. However, in recent years due to the expansion of the manufacturing industry and the importance of corporate image, many manufacturers have opt to operate from the semi-detached factory. A semi-detached factory has its own private car park which enables the employees to park their cars in the building without getting fined or to obstruct the truck from entering the factory. Another important reason is that the semi-detached factory has a wider road gate that will enable the truck to enter the factory easily.
High floor to ceiling height
We all know that properties with higher ceiling can fetch better market value due posh and spacious looking impression given to all. For industrial property especially factories, the high ceiling is very importantwith a normal minimum floor to ceiling height of up to 30-35 ft being ideal. Some of the machinery are tall and require a higher floor to ceiling height to accommodate the space required.
High electricity supply
The normal and minimum requirement of electricity supply which manufacturers would require is 200 Amp. Some heavy manufacturer may require even higher supply of electricity. The manufacturers would be required to apply to Tenaga Nasional Berhad (TNB) and that will be a hassle and can be costly.
Heavy Duty Foundation
Industrial property investor must also take into consideration a technical part which most of the residential and commercial investors would not consider. As an industrial property investor, you must find out the limit of weight which the factory can hold before the entire building starts to sink. A good factory should be able to sustain a minimum of 15kN/m2 of weight.
Office not too big
It is a trend now that most of the factory comes with in-built office so that those who bought or rent the factory do not need to further renovate the place to accommodate their admin staffs. Furthermore, the designs of the office also plays an important role and provides a good corporate image to the company. The valuer would provide a higher value for such factories.
Size does matter
The ideal size for the factory should be approximately 15,000 sq ft in land size and approximately 10,000 sq ft in build-up area. If the size is too small, the manufacturer finds it hard for the truck to drive in and the space for machinery is limited. However, if the size is too big, the owner may find it difficult to rent out or dispose of it in the future. For the factory with such size, the market price should be more or less RM 4 million.
Parties who are interested in venturing into this field should take into consideration all the above factors before investing in industrial properties.
This article was first published in the iProperty.com Malaysia June 2016 Magazine. Get your copy from selected news stands or view the magazine online for free at www.iproperty.com.my/magazine. Better yet, order a discounted subscription by putting in your details in the form below!