BY EUGENE MAHALINGAM

Industrial sub-sector can help to weather the storm

Siva: ‘The industrial market is very small but it’s close to equilibrium.’

TO property investors, the industrial sub-sector is often considered an after-thought when it comes to investing.

However, with the slowdown in the current property market, the industrial sub-sector can be a safe haven to “weather the storm” and, according to some, is poised for growth.

Axis REIT Managers Bhd head of investments and Malaysian Institute of Estate Agents immediate past-president Siva Shanker says that because the segment is small compared to other sub-sectors – that’s why it’s commonly overlooked.

“In terms of transaction volume, it accounted for about 2% of the overall property sector in 2016,” he tells StarBizWeek.

“The industrial market is very small. But in comparison with other sub-sectors like residential, commercial and office, where there is a huge oversupply, it’s close to equilibrium.

By “close to equilibrium,” Siva means that level of supply and demand is nearly on par.

“With the exception of some small cookie-cutter units such as terraces and semi-Ds, where there is a slight oversupply, a large portion of the market comprises big industrialists.

“This means that the bulk of the factories being built to suit – they’re built because there is already a waiting buyer or tenant. There are no flippers or speculators looking to make a quick gain, like the residential market.”

Siva emphasises that segments like the industrial sector, which has no speculators, tend to be more stable.

Moving forward, a factor that will boost the need for industrial space is the rapid growth of online shopping in Malaysia, says Siva.

“The face of the industrial property market is changing. In the last three to four years, the trend has been to build units between 100,000 sq ft and 300,000 sq ft.

“Nowadays, it’s 500,000 sq ft right up one million sq ft. And with the growth of online shopping in Malaysia, there are going to be bigger warehouses needed for retailers to store their products.”

According to Malaysia Shopping Malls Association advisor H.C. Chan, online retail had grown an average of 18.5% per annum over the past five years. This is comparable to physical stores, which had grown just 3.2% per year over the same period.

According to the National Property Information Centre’s (Napic) 2016 Property Market Report, the industrial sub-sector recorded 5,609 transactions last year worth RM12.02bil, compared with 7,046 transactions worth RM11.97bil in 2015.

Year-on-year, this was down 20.4% in volume but the value, however, increased a mere 0.4%.

“Selangor continued to dominate the market with 29.2% of the nation’s volume, followed by Johor and Perak, each with 13% and 11.2% market share respectively,” says Napic.

The report says most states recorded market activity contractions but several states sustained growth in value.

“Sabah charted a 66.8% growth in value due to the sale of a warehouse at Jalan Lintas in Kota Kinabalu and Jalan Apas in Tawau amounting to more than RM33mil.

“Similarly, Sarawak recorded a 47.8% increase in value resulting from the transfer of industrial property in Sama Jaya Free Industrial Zone at nearly RM190mil.”

According to Napic, the industrial overhang recorded a 10-year high with 897 units worth RM1.18bil as at year-end.

“Johor held nearly 36% of the national total, predominantly made up of semi-detached factories (154 units worth RM500mil).

“On a better note, the unsold under construction observed a reduction of 26.8% to 1,267 units while the unsold not constructed reduced further to 59 units, down 32.2%.”

Napic says the industrial sub-sector’s construction front remained sluggish except for completions, which almost doubled last year’s figure at 1,843 units.

“On the contrary, starts and new planned supply were down by more than half to 1,072 units and 2.2% to 1,080 units respectively.

“As at end-2016, there were 110,140 existing industrial units with another 6,901 units in the incoming supply and 7,514 units in the planned supply.”

In Selangor, prices of industrial units were on the uptrend, particularly in the Petaling District, says Napic, adding that these strategic areas are served with good accessibility.

“Single storey terraced factories located in Pusat Bandar Puchong and Temasya Indusrial Park observed double-digit growth ranging between RM600,000 to about RM820,000.

“In Johor, prices also firmed up with isolated marginal declines. One and a half storey terraced factory units in JB Perdana Industrial Park saw a 2.5% increase fetching between RM1mil to RM1.05mil.”

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