Fast growing e-commerce driving demand for industrial properties

By Prosyscom
In March 21, 2019
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THOUGH domestic and international issues have dimmed the outlook for the country’s economy, the demand for industrial properties, particularly mega distribution centres, inner-city distribution centres and purpose-built, industry-focused facilities, is expected to remain strong this year.

Malaysia’s gross domestic product grew 4.7% last year, a marked drop from 5.9% in 2017. This year, the World Bank sees Southeast Asia’s third largest economy growing at the same rate as last year’s and moderating to 4.6% in 2020, as lower public investment curbs domestic demand for goods and services.

However, industrial properties will continue to be sought after, in line with the fast growth in e-commerce in the region, where consumers demand either same-day or next-day deliveries from online-exclusive and online-inclusive retailers.

According to Axis REIT Managers Bhd CEO Leong Kit May, the rapid expansion of the sector in Malaysia in recent years has seen the development of mega distribution centres to handle the huge volume of products and transactions.

“This will continue to drive demand for warehouses in Malaysia. Recent major land transactions and tender awards point to a healthy landscape of high local and foreign investor interest in developing large logistics hubs and managed industrial parks,” she says in an email interview.

“The demand for warehouses does not only come from the current set of logistics and e-commerce players but also large retail brands such as Tesco, IKEA and Decathlon as they expand aggressively into online sales.”

Bursa Malaysia-listed Axis REIT has 45 industrial assets, making its portfolio the largest among Malaysian REITs.

In Malaysia, mega distribution centres are logistics warehouses with built-ups of at least 500,000 sq ft. By comparison, such centres have an average built-up of more than one million sq ft in China and Europe.

The demand for warehouses is fuelled not only by e-commerce retailers but also by large retail brands setting up their national and regional distribution centres here.

For example, Nestlé has set up a national distribution centre at Axis Mega DC in Teluk Panglima Garang, Selangor. It occupies the entire Phase 1 with a built-up of 515,000 sq ft. The facility covers 24.78 acres of leasehold industrial land, which has about 73 years of lease left on it. Nestlé has signed a 10-year lease with the option to renew twice for three years each.

Other notable mega distribution centres include the IKEA Regional DC in Pulau Indah Industrial Park in Klang, the Lazada Regional DC in Sepang and the Continental Tyres Regional DC in Kuala Selangor.

Leong opines that for the longer term, the demand for logistics warehouses will be driven by the ability of such space providers to cater for the need of more sophisticated customers for quicker and bulkier deliveries.

“Next-day deliveries are now commonly available. Both globally and locally, this is increasing the demand for last-mile distribution centres located centrally in the city and suburbs, which were not the typical locations within industrial zones and air or sea ports,” she says.

AREA Management Sdn Bhd, a logistics property developer and management firm headed by Datuk Stewart LaBrooy, is spearheading the inner-city mega distribution centre space, building a 1.2 million sq ft such structure in the Ulu Klang Free Trade Zone in Ampang.

The Area Logistics @ Ampang project is Malaysia’s first three-level inner-city logistics and last-mile delivery platform that caters for the needs of businesses to fulfil same-day or next-day deliveries for their customers in Kuala Lumpur and the north of KL area, according to AREA.

According to Datuk Stewart LaBrooy, chairman and co-founder of AREA with Rajesh Kumar, Southeast Asia’s booming digital economy will drive demand for sophisticated new warehouses and last-mile delivery solutions in Malaysia.

“Southeast Asia’s accelerating internet economy is hard to keep up with because it keeps blowing expectations out of the water. The 2016 and 2017 e-Conomy reports (a Google and Temasek project) foresees a US$200 billion internet economy in the region by 2025.

“The region is taking much less time to get there than expected, as with eight years left to go, we are already more than a third of the way to the target. So, the latest e-Conomy report projects a US$240 billion internet economy in Southeast Asia by 2025,” says LaBrooy, who was Leong’s predecessor at Axis REIT Managers before retiring in 2015.

Not only are customer expectations of next-day or same-day deliveries increasing but they also demand to know where their orders are. All these demands cannot be fulfilled by traditional distribution centres due to their non-strategic locations and old technology employed.

What about the manufacturing sector? Some economists argue that Malaysia has undergone a premature de-industrialisation because of its shift in focus to the service sector, particularly financial, retail and tourism.

The Nikkei Malaysia Manufacturing Purchasing Managers’ Index hit 46.8 in December last year — the lowest level in at least six years due to slower orders from Europe and Asia-Pacific compared with the preceding month. A reading below 50 signifies a contraction of activity.

Nevertheless, Leong believes supportive government policies, such as its attention to catalytic sectors in the 11th Malaysia Plan, are expected to continue to drive investment interest in manufacturing and create robust employment opportunities.

“Manufacturing-related sectors, namely chemical products, electrical and electronics and machinery, as well as the medical device sub-sector, have been identified as high-growth areas. This will no doubt boost demand for manufacturing.”

She adds that Axis REIT is capitalising on the government’s focus on developing the manufacturing sub-sectors by providing the industry players with niche business space.

Axis REIT recently completed a 178,900 sq ft aerospace manufacturing facility called Axis Aerotech Centre in Subang. Customised to the lessee’s requirements, the asset has a 20-year lease with the option to renew twice for six years each.



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