These key factors will propel Malaysia’s industrial property sector 

The Regional Comprehensive Economic Partnership (“RCEP”) Agreement will play a huge role.

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). 

Ong adds that 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.”

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The government is committed to reviving the economy with digitalization and aims to attract new high-quality, high-tech and green-tech investments as well as prioritizing e-commerce development as part of the country’s economic recovery plan. 

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. 

In addition to that, crowdsourcing technology through digital platforms can connect consumers or logistic partners directly with local, non-professional couriers who use their transportation to make deliveries, whereby further enhancing the growth of the industry as well as the demand of such properties.” 

Allan Sim – Executive Director of Capital Markets, Industrial said: “With the economy entering into a recovery phase from the height of the pandemic, the industrial realm within Malaysia and its neighbouring countries is 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. 

The main benefit of the RCEP is extensive market access and integration into the supply chain with opportunities to reduce tariffs. Participating countries are also looking to maximise economic gains from the free trade agreement through increased market openness, investment opportunities as well as logistics coordination.

Allan continues “The RCEP Agreement entered into force on 1 January 2022 for 10 of the participating countries and Malaysia is expected to ratify the agreement soon. This largest trade agreement is anticipated to stimulate growth and investments across the region to unlock bigger opportunities for businesses and countries alike. This tariff liberalization exercise will bring about a significant impact among the participating countries, including Malaysia. Manufacturers from the US and EU regions are anticipated to take full advantage of the benefits of the free trade agreement by relocating some of their investments into the region, devoting more resources, talent and investments to optimize their supply chain and build up the ecosystem to cater to the growing ASEAN markets.” 

“Having said, the benefits of which Malaysia can reap from the RCEP agreement is the integration with the typical by-product of a free trade arrangement – a more levelled playing field amongst countries. On this, we anticipate an accelerated push and adoption of smart factory and manufacturing processes as a means for differentiation. Investments in robotics, manufacturing AI, advanced tech and systems enabled by 5G connectivity will generate operational efficiencies in line with the aim of most businesses to reduce the impact posed by global supply chain disruption as well as labour and raw material shortages. We foresee these digital investments to come in the form of both greenfield and brownfield developments by manufacturers.” 

Malaysia has seen a significant boost in e-commerce business following the onset of the COVID-19 pandemic. The country is currently at the forefront in the e-commerce sector amongst the participating RCEP members. 

Allan added “RCEP is one of the important catalysts for Malaysia to strengthen its bond and ties with neighbouring countries. The country continues to benefit from its strategic location and positioning along the Straits of Malacca, one of the busiest shipping lanes in the world – a gateway to ASEAN and beyond.”