What is industrial property?
Industrial properties refer to land and buildings that are used for industrial activities. The industrial activities include production, manufacturing, assembly, warehousing, research, light storage, data centre, and distribution.
Types of industrial properties
To encourage innovation and creativity, companies build flexible office spaces. These office spaces are suitable for design and research for new products or proof of concepts. These flexible spaces can also be used as co-working spaces, such as those operated by Regus, WORQ, and many more.
E-commerce has accelerated the transformation of industrial real estate into warehouse and fulfilment centres as these warehouse and fulfilment centres play an essential role in logistics. Some known e-commerce players in the field are Lazada, Shopee, and Amazon are grabbing offices and warehouses to expand their fulfilment centres.
The pandemic has accelerated the trend of life sciences. Many investors see this opportunity and transform industrial real estate into medical use laboratories for healthcare purposes.
With companies migrating to the cloud, more data centres are needed. Some investors see this opportunity and transform their industrial properties into data centres.
Some companies also choose to repurpose their warehouse to become light manufacturing facilities, manufacturing retail and business consumers.
Some investors also turn the warehouse space into food manufacturing facilities that make and process food and beverages for restaurants and grocery stores. The central kitchen concept has been booming lately due to economies of scale for food businesses.
Some food manufacturers also use industrial real estate for temperature-controlled facilities such as cold storage to distribute food and beverages. Players such as SK Cold Chain Solution, Tasco, HTH corporation, Tiong Nam logistics have their industrial real estate for cold storage purposes. With the vaccine drive, governments are working with vaccine distributors to store these vaccines and distribute them to the vaccine centre.
Classification of Industrial Real Estate
Class A industrial properties are of the newest and best quality, equipped with the best facilities and features. They are often located strategically in prime locations and easy to attract high-income tenants. These buildings are highly sought after by e-commerce giants.
Class B industrial properties usually look a bit run down. Still, they are often well-maintained and sometimes without any facilities coming along. and located in second-tier or third-tier markets. Class B can potentially be a value deal for investors if situated in a strategic area.
Class C buildings often are properties with 20 years and above. These office spaces or warehouses typically need renovation or redevelopment to fetch a higher value in the future. These buildings sometimes are not located in desirable locations as well.
According to PROLOGIS, industrial property is also divided into 3 types which are Manufacturing, Storage & Distribution and Flexspace.
Advantages and disadvantages of Industrial properties
The critical advantage is strategic location and accessibility to seaport and logistics. There is a continuous escalation of industrial land prices due to scarcity in prime areas and complicated regulation in developing new business parks or industrial property townships.
Besides, obtaining long-term tenants promises a steady income. Their lease tenure is ranging from 3-5 years and sometimes ten years above. Investors can expect minimal fluctuation during the tenure period.
however investors or owners might have difficulties in finding another tenant for these specialized warehouses or properties when the original tenant leaves.
Not all industrial assets classes are in demand. A poorly designed factory space or warehouse, not strategically located, and not many developments surrounding the properties can be a grave financial disaster.
What can Industrial Malaysia do for you?
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