Warehouse demand demonstrates slower growth but remains resilient

• Warehouse demand demonstrated slower growth in light of supply constrictions. Despite slower manufacturing production activities, the market remains fairly active as the sector remains resilient.
• In the second half of the year, warehouse demand continued to stem from the 3PL, pharma/medical devices, oil & gas, automotive and cold-storage subsectors. Additionally, demand for ESG-compliant warehouses continued to grow as ESG remained a hot topic in corporate strategies.

Vacancy decreases despite increased supply

• Two warehouses were completed in 2H23: Bukit Raja Industrial Gateway Plots 1 & 2 and FIW Steel Warehouse, contributing approximately 1.1 million sq ft of warehouse space to the market. As we understand it, tenants within the newly-completed spaces are 3PLs and e-commerce companies, as well as a transshipment company. 
• The overall vacancy rate decreased to 1.5% (2Q23: 2.5%). This decrease comes as newly-completed warehouses are coming onto the market fully occupied. Additionally, some of the surplus space on the market was also absorbed in the second half of 2023.

Rents grow due to improving quality of stock

• International players continue to expand into the Malaysian market amidst the ongoing trend of supply chain diversification with the China Plus One strategy.
• Overall rents grew by 2.2% in the quarter as the market saw some high-quality stock coming online at higher-than-average rents due to the quality of space being better than the current stock. 

Outlook: Logistics market to remain resilient due to improving stock

• Rent increments are expected in the foreseeable future, albeit at a slower rate, mainly due to in-demand high-quality warehouses that will complete in the near term. These warehouses are likely to come onto the market at higher-than-average prices, considering that most existing stock is of lower quality and cannot command the same level of rent as newer warehouses.
• Rising inflation, increasing construction costs and the shortage of migrant construction workers, among other factors, are likely to cause the development of warehouses to be more expensive. However, as the market has had time to adjust to these changes, the growth of capital values is likely to slow.