Should You Invest In An Industrial Property? | Industrial Malaysia

Should You Invest In An Industrial Property?

Should You Invest In An Industrial Property?
COVID-19 is increasing the relevance of logistics and last-mile operators. With a handful of manufacturing opportunities emerging, more investors are looking to this high-quality asset class for their next investment. Let's weigh the advantages and disadvantages of investing in industrial properties.


Advantages of industrial real estate investments
 
Strong Demand for Industrial properties



The recent COVID 19 pandemic has caused a surge in demand for industrial properties; this includes manufacturing facilities for rubber gloves, last-mile delivery distribution hubs for packaging and sorting products, warehouses, e-commerce. Many companies have to rethink their commercial real estate. Organizations are giving up retail and office space, research & development (R&D), commercial real estate, and integrating with their industrial properties for cost and commercial efficiency. Knight Frank Malaysia has published its Commercial Real Estate Investment Sentiment Survey (CREISS) 2021 survey that discusses the strong interest in industrial property. The report revealed that key players in the commercial property industry are generally optimistic about logistics, healthcare, and industrial property segments but remain cautious about traditional retail and office segments. 



Long term tenants

Unlike residential properties and conventional commercial real estate shop lots, you usually get some pretty long-term industrial property tenants looking to lease for some time. This is because they typically take a long time to weigh in on their decisions and research beforehand what fits their business model and venture before signing onto that rental agreement. Their lease tenure can be as long as ten years and even more if they find that the factory suits them. It costs heavy investment to set up production lines, computer numerical controls machines (CNC), research & development machines. It usually takes several years before the tenant could achieve a certain level of economies of scale. As a result, it saves you the headache of consistently trying to source new tenants and adapting to new tenant habits due to tenants' high turnover. And with a longer lease, you can be assured of a stable investment return.
 

Steady yields

axisreitindustrialpropertyforrentinpetalingjaya

AXIS REIT acquisitions focus on industrial-type assets in the manufacturing and warehousing sectors. The pandemic has not hit AXIS REIT, and it manages to increase its first-quarter income by 3.3%. The acquisition of new property contributes to its earning growth. Investors can expect minimal fluctuations in their investment value. There will not be issues such as a sudden incoming supply of factories or a premature fire sale of these properties does the supply and demand are most of the time matched.
 

The rise of e-commerce and logistics warehousing


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The COVID -19 pandemic has accelerated the growth of e-commerce and logistics warehousing.  According to the IBM Retail Index, the pandemic has accelerated the shift from physical stores to digital shopping by roughly five years in advance.  The report suggests that department store retailers will need to pivot more quickly to omnichannel fulfillment capabilities to remain competitive in the new environment. Specifically, they will need to drive traffic to their stores through services like buy online and pick up in-store and will need to offer an expanded set of ship-from-store services.
The surge of demand for warehousing has caused many companies to look for factories and warehouses at strategic locations to store their goods before delivering to customers as customers' needs and demands grow.  Sellers and distributors are looking to fulfill the order and gain their market share via faster delivery time, hence the need for last-mile delivery warehouse and distribution hubs.


The surge of demand for warehousing has caused many companies to look for factories and warehouses at strategic locations to store their goods before delivering them to customers. Sellers and distributors are looking to fulfil the order and gain their market share via faster delivery time, hence the need for last-mile delivery warehouses and distribution hubs. There are many well-known industrial parks in Malaysia, such as Shah Alam Industrial Area, Subang Hi Tech, HICOM glenmarie, Batu Kawan Industrial Park and etc.



Scarcity of industrial properties and building in the prime area.

The state authorities often divide a township into different zones, such as agriculture, residential and commercial zones. Out of these 3 zones, the industrial zone is the least available as industrial land is scarce. Any redevelopment of the land requires state authorities, federal authorities and sometimes other stakeholders' approval. Thus, these factors increase the difficulties to increase the industrial properties supply. As a result, those industrial properties in prime areas can fetch an excellent price due to lack of supply.



Lower maintenance cost

In addition, if the industrial property is a triple net lease, the tenant agrees to pay the property expenses, including real estate taxes, building insurance, and maintenance in addition to rent and utilities. Thus, the maintenance fee falls on the tenant's responsibility. So, industrial properties do not require as much maintenance as other properties. Triple net leased properties have become popular investment vehicles for investors because they provide low-risk steady income.

Besides, overall longer lease terms imply that an industrial building owner won't need to renovate the properties often since there's lower tenant turnover.



Disadvantages of industrial property investments

Not all industrial assets class are in demand


notallindustrialassetclassareindemand

A bad design factory or warehouse can be a grave financial disaster. Failure to account for sufficient loading bays, large in-corporation of offices to warehouse ratio, massive warehouse beam, low eave height, insufficient electricity power can be detrimental. Like a double-edged sword, on the one hand, you may secure a long-term tenant with leases that can go as long as ten years. Still, you may also take a long time before being able to find a suitable tenant on a poorly designed industrial property. Tenants focus on the highest and best use of the industrial property to achieve the highest commercial efficacy. Inefficient design industrial properties may be left vacant for an extended amount of time, which means that the owner has to foot the bill and costs of maintaining the building, financing cost.


Is the demand for industrial property genuinely sustainable?


In the year 2020, the growth and demand for industrial properties have been unprecedented, and it will continue to increase to the year 2021. The rental rate of industrial properties has risen from 1.60 per sqft to 1,80per sqft to a high of reaching RM 2 per sqft. Hence this causes many companies to venture into industrial property development. The trend is evident in the recent mega warehouse investments in Malaysia, for example, the setting up of the one million sq ft Ikea regional distribution and supply chain center in Pulau Indah and AREA Logistics' warehouse with a built-up of 1.5 million sq ft in Ampang. In Shah Alam, Hap Seng Industrial Hub will complete a 20-acre industrial facility with 1.38mio of sqft. Galaxy Logistic hub in Puncak Alam has 1.5mio of ready space.  Recently Aspen group has acquired 71 acres of industrial space in Shah Alam Seksyen 16. Hence industrial space will be abundant within the next five years.  Thru our work, we have noticed many new start-ups for e-commerce, logistics and glove manufacturing companies that enter into the foray of renting or investing in industrial properties. The majority of them are riding on the wave of growth that is caused by the pandemic. The question remains what will happen post-pandemic? Are some of the newly minted gloves manufacturers continue to sustain to be profitable? And can the market support a large number of logistics and e-commerce players?



High purchase price of industrial land and construction cost.

Continue escalation of industrial land prices due to scarcity in prime area and regulation from state and local authorities means; industrial builders need to continue to spend a considerable amount of money in the development of warehouses and factories. Over the years, building materials continue to rise substantially. The unprecedented pandemic has created problems for builders to obtained foreign workers. There is also another underlying cost like the COVID-19 screening test. The government's movement control orders (MCO) have caused delays in completing factories and warehouses. This has escalated cost and create time inefficient and uncertainties, which are costing industrial real estate developers.




Grow your industrial property investment with IndustrialMalaysia
 
IndustrialMalaysia offers valid choices of industrial factories and warehouses for rent and sale. We offer personalise options of real estate assets that are pandemic and recession proof. 

As we know, the richest in the world make their fortunes in many approaches, but there is one common theme for their investment. Real estate plays a crucial role in their investment portfolio. 

We have compiled a list of factories in Shah Alam and other areas. Should you need more details or information on industrial real estate properties, please email us at hello@industrialmalaysia.com.my