During this current Covid-19 pandemic, the property market will be on its most difficult periods in recent history yet various market research reports have shown that the effects of this pandemic in the industrial sector have had marginal effects. The rise of e-commerce has caused an unabated demand that has driven rental prices up, hence buying a correct industrial property can be challenging under prevailing market conditions.  

To Purchase or to Rent? 

There are two options to start your operations. Most companies consider purchasing the factory as their first choice if the budget allows. The second option is by renting. Renting the factory can be a favorable option as generally, the payments tend to be lower than purchasing a factory. Thus, continuously evaluating the cost to buy and rent in the long run based on your operation needs and liquidity. The disadvantage of renting is that landlords could sell their factories or increase rent anytime, which increases the cost of operations from a long-term perspective. If the business owner has high or expensive capital machinery, you will be at risk. It is painful and costly to move your machinery to a new factory, and imagine incurring another high expense in modifying the new factory space.
 
The main advantage of buying a factory is that the business owner pays less in the long term. It is because you save up from paying rental fees and continuous modification and renovation fees. In terms of tax perspective, you can enjoy an Industrial building allowance which includes buying factories. The business owner enjoys an initial allowance of 10% and an annual allowance of 3%. And by purchasing the factory, you also want the appreciation of the property value.
 
Buyers must weigh up critical factors with the correct attributes. The Greater Klang Valley industrial market is experiencing high demand, driven by limited land for new factories. Thus, if you would like to buy a factory now for your operation use, below are four key factors to consider in today's environment.
 
Location
 
While it can be obvious, the location attractivity can change rapidly by changing demographics and rezoning. Prospective buyers need to factor in these geographical considerations. Salient questions include the frequency of shipments to and from the factory location, rules, and regulations from DOE that govern the states, how far are your customers and other supporting industries and raw materials geographically? Assuming there is a crisis, geographically, how far are the raw materials substitute located. We have come across a prospective buyer whose business is in-service engineering and has bought a factory at a remote geographical location to maximize space and price. The buyer only realized the difficulty in hiring skilled workers after purchasing the factory. He had to endure the additional variable cost of worker accommodations and allowances.
 
Office to production space ratio.
 
Factories with an unusually high proportion of offices to the production space are hard to sell and lease. Such units are generally more expensive as bigger built-up offices are needed to be computed in the selling cost. During 2015- 2016, many hybrid factories were built with 3-4 sty that had a 50% production and 50% office ratio. Although, there was a sold-out by the developers. Owners of these units are finding it challenging to rent now.
 
Buyers should look for factories that have more space for production. Most factories located in the Klang Valley have an allocated 30% space for office building built-Up. Prospects and buyers can always look at the flexibility of the internal built-up for the office and the production space on the possibility to convert a percentage of office space into production space.
 
Space designed and Functionality.
 
This factor should be the buyer's highest priority. If you have to choose between a 50,000 sq ft factory with 40 feet eave height that costs slightly more than a similar style unit with 30 feet clearance, go for the 40 feet height every time. The intent is to figure out the highest and best use of the property. So that these assets are used to maximize their potential to the max. This means you may not find a need for that additional height of 10 feet or that slight additional space of 10,000sqft for your current production now. However, you will realize how vital this factory is to expand and change your operation flow or lease out your factory in a later year to come.
 
To purchase at a fair price.
 
The best way to evaluate the options is to do a cash flow analysis to estimate how much cash you need to set aside to cover the factory and how quickly the factory can break even. This helps you weigh the pros and cons of renting and buying. Of course, if you purchase the factory, you benefit from tax savings. Unlike rent, the money you pay is not deductible. Thus, purchasing the factory looks favorable from a tax perspective as you are allowed to recover this outlay over time by yearly depreciation deductions. The best advice IndustrialMalaysia offers is always to consider the factory purchase based on your budget.
 
Everybody knows the price but not the value and the opportunity cost.
 
Some prospects look at an improbable of 15%-30% below market price for a factory during these challenging times. We would often advise them that it is better to look for a factory that offers them the highest and best use and buy it at a fair price or a slightly higher price. Unlike the residential and commercial real estate markets, there are limited units due to town and country planning and zoning. The number of units' ratio will be lower. Besides that, most factories need to be near worker hostel amenities or Tenaga Nasional Sub Stations that provide sufficient electricity and ensure that it complies with the Department of Environment and various safety factors.
 
Opportunity cost is a forgone benefit that you let go of if you did not choose this opportunity. Putting in this context means the buyer is holding back while waiting to find their dream and perfect factory. Based on our extensive experience in screening factories, the opportunities for value buy are scarce because of limited choices and options. Thus, we often advise potential factory buyers to weigh their purchase attributes and rank them based on business needs.
 
 Make your factory purchase experience best with IndustrialMalaysia.
 
The best deals are always hidden gems. It is because some vendors or sellers prefer to engage industrial property experts due to their concern about confidentiality. Thus, the best advice for you is to engage a local expert like IndustrialMalaysia.
 
 Allowing an excellent real estate professional who is familiar with the factory field to understand your needs will enable you to save much hassle, time, and effort.
 
Engaging a real estate professional provides you with a personalized approach, giving you hidden insights on the locality advantages and disadvantages. With our professional and customized approaches, we can explore hidden advantages and disadvantages of the factory, which the buyer may not be aware of.
 
Our expertise and network can help you smoothen the buying processes. Our property expert enables you to figure out your business needs, the special specifications you are looking for in the factory, and your budget.
IndustrialMalaysia provides additional insights on commercial real estate's latest trends and insights, and we can help you spot the strategic location and the suitable industrial properties. Email us at hello@industrialmalaysia.com.my if you have any questions.