KUALA LUMPUR: The industrial property market in Malaysia could exceed RM13 billion per year in terms of demand, particularly in Johor, creating numerous opportunities for developers to gain market share.

According to UBS, its recent Johor site visit revealed a strong pipeline of incoming foreign direct investments (FDI), supporting its estimate of a six to ten per cent compounded annual growth rate (CAGR) for industrial property transactions from fiscal years 2021 to 2030.

It said that, despite concerns about an overly ambitious target, past data suggest a nearly twofold increase in FDI and domestic direct investment (DDI), implying six to ten per cent growth in the coming years.

"Contrary to investors' concerns, our analysis of industry dynamics points to low risks of oversupply. From our trip, mature industrial parks near Senai are seeing strong interest from both multinational companies and SMEs. For Johor, industrial parks are not distinguished by a particular sector concentration but are better categorised by light, medium, and heavy industries. Hence, such parks can fill up quickly.

"Overall, we think industrial lands that are connected to transport hubs (particularly near Senai and Pasir Gudang Port in Johor's north and east) are becoming scarcer. Although publicly listed developers' industrial landbanks are spread out over a sizeable 2,500 acres, this is smaller when going down to specific markets.

"On the supply front, developers have low industrial landbank holdings. Industrial areas around transport nodes are largely built up (experiencing limited vacancy), while developers are taking a measured approach towards large-scale change of use towards industrial," UBS said in a recent note.

According to UBS, developers and the Iskandar Regional Development Authority (IRDA) are optimistic about upcoming direct investments, with strong interest from China, Singapore, the United States, and Europe in data centres, manufacturing, and logistics.

To name a few key drivers, it said that physical and digital connectivity to Singapore and its ports serve as a springboard for investments into Johor, which is aided by the availability of land and utility infrastructure.

While it may be an advantageous time for agricultural landowners to extract value from their lands, UBS believes that conversations with key landowners in Johor, such as Johor Corporation, indicate that prime industrial lands near connectivity nodes (along major highways) will likely be retained, thereby mitigating the supply profile.

However, it believes that significant land can be gained from land conversion to industry, particularly in Iskandar Puteri in the west.

Master developers like UEM Sunrise Bhd, which has over 2,000 acres in Gerbang Nusajaya, and Sunway Bhd are looking to change the mix of such townships to a higher industrial mix.

"However, we think this should be seen in the context of potential end-users' scale," UBS said.

Eco World Development Group Bhd (EcoWorld), as one of Malaysia's leading industrial players, may greatly benefit from the Johor industrial market.

The company's undeveloped landbank was approximately 3,413 acres as of August 2023, with a remaining gross development value (GDV) of RM56 billion.

Historically, its industrial presence has been concentrated in Johor and central Malaysia. Its product offerings are industrial lots (customizable factories) measuring about one acre, with the possibility of site amalgamation for large users.

EcoWorld recently replenished its industrial landbank in Johor, demonstrating its ability to source land.

"EcoWorld has the leverage to pursue further industrial land deals. The developer scored a significant 92-acre land deal with Haitian in early 2023. I recently purchased a landbank in Johor at RM12 per square foot, which is close to the market rate, and that has the potential for data centre uses," UBS said.

Mah Sing Group Bhd is also a major player in the industrial property market in Johor. It has previously taken part in its i-Parc industrial projects.

The plan is to participate in the future through a joint venture with South Sea Capital, with its partner sharing local contacts from mainland China.

According to UBS, Mah Sing will concentrate on acquiring suitable landbanks and developing industrial properties.

"We think Mah Sing's asset-light approach is a safe way of expanding and playing the industrial theme. It has demonstrated a track record of quick turnaround landbanking within residential," it said.

As of June 2023, Mah Sing had over 2,333 acres of undeveloped land, with a remaining GDV of RM24.5 billion.

Meanwhile, UBS believes that SP Setia Bhd is well positioned to capitalise on the industrialisation theme in Johor.

SP Setia has exposure through business parks, but its primary exposure will be through three major industrial land plots earmarked for monetisation, totaling nearly 967 acres.

"We estimate this could amount to RM0.5 billion in monetisable land proceeds. We think SP Setia could benefit from its industrial presence across Malaysia. High leverage was a previous concern, but we think that accelerated monetization of land banks can help to deleverage ahead," it said.

SP Setia is in the process of converting land zoning to industrial at Setia Fontaines Industrial Park in Penang (260 acres), Setia Alaman in Klang (399 acres), and Tanjung Kupang in Johor (308 acres).