Industrial segment to register highest rental growth from e-commerce boom

Infrastructure investments are key to underpinning the segment’s growth and Malaysia ranks 3rd as the logistics hub of choice in South-East Asia 

by ASILA JALIL / Pic by MUHD AMIN NAHARUL

THE industrial segment in the property sector is poised to have the highest rental growth in the coming years following the expansion of e-commerce. 

RHB Investment Bank Bhd stated infrastructure investments are key to underpinning the segment’s growth and Malaysia ranks third behind Singapore and Vietnam as the logistics hub of choice in South-East Asia. 

“A few notable multinational corporations (MNCs) have chosen Malaysia to be their regional distribution centres including IKEA, Lazada Group, Nestle SA and BMW AG. Logistic facilities with smart systems such as automated storage and retrieval systems will be able to command a higher rental rate,” RHB Investment’s analyst Loong Kok Wen wrote in a note recently. 

The investment bank recently held a talk with Knight Franks’ ED of research and consultancy Amy Wong and focused on emerging trends in the sector as well as niche opportunities in products such as workers’ accommodation and data centres.

RHB Investment has maintained ‘Neutral’ on the property sector with AXIS REIT and IBG REIT as its top picks. 

Workers’ accommodation provides the sector with a strategic diversification opportunity given the increasing emphasis on the environmental, social and governance aspects of worker wellbeing and resilient industrial development. 

Loong noted existing purpose-built workers’ accommodation are predominantly owner-operated, but there are various partnership models to be explored between the owner-operator model and triple net lease to dormitory operator, depending on the preferred level of distinction between ownership and operation. 

The yield for this segment is estimated at around 7%-9%, she added. 

She highlighted the major Asia-Pacific data centre markets have an average capacity of 35.7 megawatts (MW) per million capital, compared to only 5MW for Malaysia. 

While this suggests the potential for growth, the limited number of data centres in Malaysia is largely due to insufficient power and water supply infrastructure in the country. 

“However, rental rate per sq ft for data centres could be much higher compared to the rate for conventional industrial properties,” said Loong. 

Despite the work-from-home trend over the past two years, Loong stated offices are still vital to companies for a corporate image. 

Landlords that are successful in reinventing their office space and incorporating better collaboration space with flexibility will likely attract more tenants. 

“For retail, anchor malls in the Klang Valley will continue to remain relevant, with the rise in e-retailing having a more negative impact on mid-sized malls. 

“Compared to Lalaport, Pavilion Bukit Jalil mall seems to have better prospects given its design, location and the strength of its leasing team,” the RHB Investment report stated.