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4 Important Factors To Consider When Buying A Factory

4 Important Factors To Consider When Buying A Factory

 
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.  

It is important that buyers weigh up key factors with the correct attributes. The greater Klang Valley industrial market is experiencing high demand and record-low vacancy driven mainly by lack of land for new industrial premises, but that has not limited buyer interest.

Industrial rents in Malaysia have grown above long-term trends in the 12-24 months. According to the Valuation and Property Services department (JPPH) in its Property Market Report 2018, the industrial property sub-sector recorded 6,032 transactions worth RM15.01bil in 2018, which was an increase of 5.4% and 28.9% in volume and value compared to the year before. In the same time period Knight, Frank Malaysia has mentioned there was tremendous growth in foreign investments within the Klang Valley in the first half of 2019, driven mainly by robust performance in the manufacturing sector.

Attached are several reasons from practical pricing to usage to consider when buying an industrial property in today’s environment.

Location

While it can be obvious, regions can change rapidly when affected by changing demographics and rezoning. Prospective buyers need to factor in important geographical considerations. Salient questions include the frequency of shipments to and from the factory location. Rules and regulations from DOE that governs 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 contingencies of raw materials substitute located.   We have come across a prospective buyer whose business is in the service engineering and has bought a factory at a remote geographical location to maximize space and price. Only to realize the difficulty in hiring skilled workers. 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 office to the production space are hard to sell and to lease. Such units are generally more expensive because of the bigger built up of offices is needed to be computed in the selling cost. During the 2015- 2016 there were a lot of hybrid factories that were built with 3-4 sty that had a 40% production and 60% office ratio. Granted there was a sold-out by the developers, owners of these units are finding it difficult to rent now.
Buyers should look for factories that have more space for production. Most factories that are located in the Klang Valley have an allocated 30% space for office on the building built-Up.  Prospects, 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 should be the buyer’s highest priority. If you have to choose between a 50,000sqft 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. This is a premise of value that assumes that the assets are put to a use that maximizes its potential in continuation of its existing use or for some other alternative.  Meaning 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 important this factory in when you decide to expand and change your operation flow. or lease out your factory at a later year to come.

To purchase at a fair price

While some of the prospects are looking at an improbable of 15%-30% below market 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 if not at a slightly higher price. Unlike the residential and commercial real estate markets, there is a limited quantity of 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 are in place. We will ensure that you are paying the right rate per square meter for the particular area that you are looking at. Email us at if you have any questions.