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Knight Frank: Malaysia’s industrial sector heads into 2022 with a firm footing


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14 January, KUALA LUMPUR: Following the country’s successful vaccination drive, most economic sectors and businesses have reopened under Phase 4 of the National Recovery Plan (NRP).

According to Knight Frank Malaysia’s latest publication, the Real Estate Highlights H2 2021, the country’s Industrial Production Index (IPI), which read at 114.1 points as of 3Q2021, has continued to remain above the 100-point threshold since June 2020, supported by strong performance in the manufacturing and electricity sectors.

During the first nine months of 2021, the manufacturing index grew 9.6% year-on-year to record 124.8 points while the mining and electricity indices also experienced the expansion of 2.3% and 1.6% to register at 90.3 points and 115.8 points respectively.

The gradual easing of strict containment measures to curb the spread of infections has been positive to the country’s economy. The headline IHS Markit Malaysia Manufacturing Purchasing Manager’s Index (PMI) of 52.2 in 2021, above the 50-point threshold, is reflective of improving business and manufacturing conditions.

Opportunities abound in the Industrial Sector

The pandemic has accelerated growth in the e-commerce market and coupled with rapid digital adoption, products relating to food, fast-moving consumer goods, health and pharmaceutical etc. have continued to spur demand for industrial real estate.

Judy Ong – Executive Director of Research & Consultancy, Knight Frank Malaysia shared: “The prolonged periods of COVID-19 lockdowns and restrictive movements have triggered digital transformation and e-commerce boom. Malaysia’s e-commerce market is at an inflexion point and in 3Q2021, its income by establishments grew 17.1% year-on-year to RM279.0 billion (source: Department of Statistics Malaysia).

The country’s industrial market has seen steady growth in recent years largely due to a higher e-commerce penetration rate resulting in additional warehousing/logistics space requirements to meet the surge in last-mile delivery as well as the structural shift towards omnichannel retailing. It is anticipated that the momentum gained will continue into 2022 and beyond as demand continues to remain resilient. Additionally, Budget 2022 has a RM250 million allocation for the Shop Malaysia Online and the Go-eCommerce Onboarding campaigns.”

Alexel Chen – Executive Director of Knight Frank Sabah highlighted “The COVID-19 crisis has enhanced dynamism in the e-commerce landscape across countries and has expanded the scope of e-commerce to more consumer segments and products. Similarly, in Sabah, the marriage between brick-and-mortar and e-commerce was more pronounced in the new norm to better encompass all the needs of consumers. As consumers increasingly turn to online shopping, speedy last-mile delivery has been a key concern for the transportation and logistics industry. Based on observation, more strategically located warehouses or commercial shop lots are now in greater demand as logistic players expand their distribution network to ensure efficient distribution.

Allan Sim – Executive Director of Capital Markets, Industrial said: “With the economy entering into recovery phase from the height of the pandemic, the industrial realm within Malaysia and its neighbouring countries are entering into a new chapter of revolution. Whilst e-commerce growth will continue to underpin the thriving industrial real estate market performance, the new growth areas will be heavily influenced by factors driven by the Regional Comprehensive Economic Partnership (RCEP) Agreement, automation as well as Environmental, Social and Governance (ESG) agenda.”

RCEP is set to create the world’s largest free-trade zone for new trade and investment opportunities among the 15 Asia-Pacific participating countries and it represents approximately 30% of the world’s gross domestic product (GDP) and about a third of the global population.

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Industrial Sector Outlook

In the short to medium term, the re-opening of the country’s economy is expected to spur demand in the industrial sector, as evident by improved transactional activities in the second half of the year.

Debbie Choy – Director of Knight Frank Johor said “It is exciting to see emerging alternative asset classes such as data centres and workers’ dormitory. Over and above existing facilities that we have noted in the past, namely Microsoft and TM One, notable operators such as GDS Holdings, Bridge Data Center and Wiwynn Corporation are entering the Johor Bahru market.

With large investments in industrial and manufacturing facilities coupled with the enforcement of Act 446 (The Workers Minimum Standard of Housing & Amenities), planned and upcoming industrial parks are set to incorporate such amenities – this will lead to growth in this (workers’ dormitory) class of asset.

Mark Saw – Executive Director of Penang Branch, Knight Frank Malaysia stated: “Penang’s industrial sector remains positive as we observe expansions from significant foreign and local companies such as Intel, Simmtech, Greatech, QES, UWC, Pentamaster and others who have demonstrated their continued confidence and commitment in the State’s industrial ecosystem. The expansion of Intel Penang, part of Intel Corp’s US$7 billion (over RM30 billion) planned investment in Malaysia, augurs well for the E&E sector – with the adoption of new, innovative and advanced technologies, it will help supporting industries to flourish.

In addition, the Penang State Government through Penang Development Corporation (PDC) is planning to expand/open up more industrial parks – 2,000 to 3,000 acres in Batu Kawan Industrial Park 2 in Byram, Nibong Tebal and 600 acres for Batu Kawan Industrial Park 3. This, coupled with plans to set up two more Global Business Services (GBS) facilities at Bayan Lepas Industrial Park and Bayan Baru (near to the existing GBS@Mayang), augur well for the State’s economic growth.”

“Aside from the infusion of digital tech in the sourcing of raw materials to the deliverance of finished products to customers, more organisations are dedicated to redesigning their supply chain around sustainability initiatives with a focus on efficient energy consumption and corporate responsibilities. The evolving landscape of ESG compliance, especially among MNCs from countries that mandate disclosure for more non-financial matrices, will certainly bring new bearing on industrial real estate and demand attention of developers to modern industrial parks in 2022 and beyond,” Allan adds.

“We expect to see positive demand in well-planned and mature industry developments. Industry land prices are likely to trend upwards driven by growth in the logistics and e-commerce sector, supported by new requirements and space expansion from e-commerce players as well as last-mile logistics service providers. However, we believe all eyes should be on RCEP, ESG and smart manufacturing which are anticipated to bring about a paradigm shift to the industrial landscape as we know it”, Allan concluded.

Disclaimer: The information is provided for general information only. Malaysia Sdn Bhd makes no representations or warranties in relation to the information, including but not limited to any representation or warranty as to the fitness for any particular purpose of the information to the fullest extent permitted by law. While every effort has been made to ensure that the information provided in this article is accurate, reliable, and complete as of the time of writing, the information provided in this article should not be relied upon to make any financial, investment, real estate or legal decisions. Additionally, the information should not substitute advice from a trained professional who can take into account your personal facts and circumstances, and we accept no liability if you use the information to form decisions.

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