MANAGER’S DISCUSSION AND ANALYSIS
property market overview 2018
Malaysia’s economy recorded sustained growth of 4.4% during 3Q2018 (2Q2018:4.5%), mainly driven by expansion in domestic demand and higher private investment. The country’s gross domestic product (GDP) for the whole year of 2018 is expected to be in the region of 4.8%.
The Business Conditions Index (BCI) slipped 7.5 points to 108.8 points in 3Q2018, from 116.3 points registered in the second quarter. This suggests that business trends continued to expand albeit at slower pace.
The labour market conditions continued to remain favourable with unemployment rate at 3.4% in 3Q2018 (2Q2018: 3.3%).
Bank Negara Malaysia (BNM) kept the Overnight Policy Rate (OPR) unchanged at 3.25% to remain accommodative and supportive of current economic activity.
The country’s total trade for the period from January to October 2018 was valued at RM1.56 trillion. For the first time, exports breached the RM90 billion mark in October to hit a record high of RM96.38 billion with China remaining as the top export destination. On a y-o-y basis, exports and imports grew 7.5% and 5.4% to RM829.89 billion and RM727.88 billion respectively.
Malaysia’s industrial production index (IPI) was 4.2% higher year-on-year (y-o-y) in October 2018, supported mainly by higher output in the manufacturing and electricity sectors.
The Nikkei Malaysia Manufacturing Purchasing Managers Index (PMI), a measure of business conditions in the country’s manufacturing sector, hit 46.8 in December, down from 48.2 in November, the lowest level since July 2012 as a result of general market slowdown due to lower orders and higher operating expenses. Readings above 50 indicate an expansion while those below 50 indicate a contraction.
Industrial Sector Overview
The services and manufacturing sectors have consistently remained as the key engine to the country’s growth. From 2016 to September 2018, contribution from the manufacturing sector has been fairly consistent at circa 23.0% of the country’s total GDP (at current prices).
Malaysia: Manufacturing Sector - Percentage Contribution to Total GDP (at constant 2010 prices), 2016 to Jan-Sept 2018
The manufacturing sector continues to be an important part of Malaysia’s industrialisation efforts, attracting both local and foreign investments. From January to September of 2018, the sector saw the approval of 468 projects with total investment of RM59,070.4 million (circa 42.4% of the country’s total investments) and the creation of some 41,033 job opportunities.
Foreign investments formed the bulk of total investments with about 82.6% share (or RM48,764.4 million) with the remaining RM10,306.0 million or 17.4% coming from domestic investments. Some 59.8% of the foreign investments in the manufacturing sector were from Asian countries such as China, Indonesia, Republic of Korea and Japan whilst investments from the Netherlands, the United States and British Virgin Islands collectively made up circa 29.0% share.
Manufacturing Sector: Investment Overview, 2016 to Jan-Sept 2018
Three industries accounted for about 62.8% of the total approved investments, with petroleum products (including petrochemicals) topping the list with investments of RM20,413.5 million, followed by electrical and electronic products (RM10,652.3 million) and basic metal products (RM6,056.4 million).
By state, Johor topped the list with RM26,526.6 million or 44.9% share of total investments in the manufacturing sector, followed by Pahang with RM8,975.5 million (15.2%), Selangor (RM8,246.9 million or 14.0%), Terengganu (RM4,283.5 million or 7.3%) and Penang (RM3,825.2 million or 6.5%).
Greater Kuala Lumpur
For the January to September 2018 period, WP Kuala Lumpur and Selangor recorded a combined total of 151 approved manufacturing projects with corresponding total capital investment of RM8,377.2 mil
Close to 95% of the manufacturing projects approved for Greater Kuala Lumpur comes from Selangor with RM5,839.1 million in foreign direct investment (FDI) or circa 70.9% of the state’s total capital investment.
Notable manufacturing related announcements in Selangor during 2018 include the following.
WP Kuala Lumpur and Selangor: Volume & Value of Industrial Property Transactions, 2016 to Jan-Sept 2018
In 2017, Selangor recorded a total of 1,957 industrial property transactions valued at RM6,168.90 million, 19.5% and 4.7% higher in terms of volume and value of transactions respectively when compared to the preceding year (2016: 1,638 transactions valued at RM5,891.39 million).
For the first nine months of 2018, there were 1,371 industrial property transactions with combined value of RM6,413.63 million in the state. The terraced factory category remained the most actively transacted, accounting for 45.8% share of total transacted volume in the industrial sub-sector; followed by others (24.4%), semi-detached (19.9%) and detached (9.9%) categories. In terms of value, the detached factory category topped with circa 44.5% share or RM2,855.79 million, followed by others (30.4%), semi-detached (15.7%) and terraced (9.4%) categories.
In contrast, there were only 77 recorded industrial property transactions valued at RM278.91 million in WP Kuala Lumpur in 2017 (2016: 118 transactions valued at RM397.90 million). The Federal Territory registered only 106 industrial property transactions in the first nine months of the year with corresponding value RM205.01 million
Supply: Existing and Future
As of 3Q2018, the cumulative existing supply of industrial properties in WP Kuala Lumpur and Selangor stood at 45,359 units with the highest concentration of supply dominated by terraced factory category with 30,939 units or 68.2% market share.
The cumulative existing supply of industrial properties in Selangor stood at 40,221 units as of 3Q2018. There was an increase of 628 units from 2017, made up of 423 semi-detached units, 143 terraced units and 62 detached units.
The terraced category continued to dominate the existing supply with circa 70.6% market share, followed by the semi-detached and detached categories with 15.9% and 12.6% share respectively. The majority of terraced factories in Selangor are located in Petaling District (36.7% share or 10,415 units).
As for incoming supply, the terraced and semi-detached categories dominate with 400 units (38.8%) and 395 units (38.3%) respectively. The majority of the incoming terraced units will come from Klang District (298 units) and there will be 178 units of semi-detached factories from Gombak District.
The cumulative existing supply of industrial properties in WP Kuala Lumpur has remained unchanged at 5,138 units since 2016. The terraced category dominates the existing supply with circa 49.5% market share, followed by the flatted factory category with 32.5% share.
There is no incoming supply of industrial properties in the federal territory although there are some 37 units of terraced factories under planning stage in the districts of Kuala Lumpur and Setapak.
The asking rentals for established industrial premises in Kepong range from RM1.40 per sq ft to RM2.20 per sq ft per month while in the locality of Sungai Besi – Chan Sow Lin, they range from
RM1.50 per sq ft to RM2.50 per sq ft per month.
The asking rents for industrial premises in selected established areas such as Sections 51, 13 and 19 of Petaling Jaya remained stable, ranging from RM1.70 per sq ft to RM2.50 per sq ft per month for warehouse space and from about RM2.20 per sq ft to RM2.80 per sq ft per month for the office component.
Detached factories / warehouses in Temasya Glenmarie and Hicom Glenmarie Industrial Park command monthly rental rates in the region of RM1.70 per sq ft and RM2.40 per sq ft per month respectively while asking rents in the established industrial areas of Sections 15, 21 and 26 (Hicom Industrial Estate) in Shah Alam, range from RM1.30 per sq ft to RM2.20 per sq ft per month.
Asking rents in Subang Hi-Tech Industrial Park are observed to be between RM1.50 per sq ft and RM2.00 per sq ft per month while in Bukit Jelutong, asking rents are quoted between RM1.40 per sq ft and RM1.80 per sq ft per month. In Bukit Raja Industrial Park, rentals range from RM1.20 per sq ft to RM1.60 per sq ft per month.
In the traditional industrial areas of Klang (including Port Klang, Telok Panglima Garang, Pandamaran and Meru), asking rents range from RM0.80 per sq. ft. to RM1.60 per sq. ft. per month.
Industrial cum warehouse space that come with state-of-the-art facilities / higher specifications (built-to-suit) are able to command significant premium in rental yields.
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