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Industrial property market slowing in Malaysia

Analysts say that the current slowdown in manufacturing orders has not impacted on industrial property as tenancy contracts for the sector are locked in for a longer period of between five and 10 years compared with two to three years for office property.

They say that these long term tenancy commitments reduce any panic selling or irrational transactions, thus sustaining the prices and rental rates of these properties.

Also this property sector has remained relatively resilient because landlords are more willing to work out solutions with their tenants during the current difficult times and tenants are allowed to pay up when business conditions recover.

'Landlords are more inclined to help roll-over rentals because capital expenditure for signing up new tenants is quite high,' said an analyst from Kenanga Research.

The reason for this is that industrial property space is usually tailored for specific tenants and any changes in tenancy will incur additional costs of construction and renovation.

Association of Valuers and Property Consultants in Private Practice Malaysia (PEPS) president James Wong said that industrial property prices are stable and have not declined. However, he warns that the full impact of the global recession has not been fully felt yet and he expects industrial property market to be affected later this year.

'We foresee that there will be a slight drop in prices, demand will be weakened and new launches of industrial property are likely to be deferred until confidence returns to the market,' he said.

'The volume of transactions of industrial properties will also contract. Although the industrial property market in the Klang Valley is expected to be the most resilient, a mild drop in prices seems inevitable. A number of manufacturing companies will close down and go into receivership. This will result in forced sale by the banks, which will bring down industrial property value further,' he added.

A recovery is not predicted until 2010 and the performance of the industrial property market will depend on the performance of the manufacturing sector, Wong continued.

Wong suggests seeking new export markets is one of the ways to boost industrial property. Others include setting up small and medium-scale industrial parks with subsidised grants, hi-tech and science parks.

Colliers International Property Consultants managing director Teik Bin Teh said demand for industrial property is on the decline but the exact number is unclear because transactions are virtually at a standstill. 'We are unable to judge the price trends with only a few transactions. But prices are certainly not going up,' he said.