Property
Bright start for KLIA Aeropolis
Joseph Wong 
The DFTZ e-fulfillment hub at KLIA will facilitate seamless cross-border trade
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MALAYSIA Airports Holdings Bhd’s (MAHB) ambitious RM33 bil KL International Airport (KLIA) Aeropolis project in Sepang, Selangor, is firmly on track after roping in big guns who will invest billions into the development.

The 3,460ha project in Sepang, Selangor was launched in May last year and will be completed in phases in the coming years.

Similarly, the airport operator’s smaller RM450 mil Subang Aerotech Park, which was also launched last year, has gained the attention of several international aeronautical companies.

The biggest buzz generated was the Digital Free Trade Zone (DFTZ) launched last month within KLIA Aeropolis, with the Alibaba Group taking a substantial role in developing its first regional e-fulfilment hub outside of China.

“This will contribute to KLIA’s air cargo and logistics ambitions and its master plan to achieve 3.5 million tonnes per annum, by 2050,” says Badlisham

The project is to be developed through a joint-venture (JV) between Malaysia Airports and Cainiao Network, Alibaba’s logistics arm, says MAHB managing director Datuk Mohd Badlisham Ghazali.

 

The DFTZ e-fulfilment hub at KLIA will facilitate seamless cross-border trade and enable local businesses, especially SMEs, to export goods, with the priority being for e-commerce, he tells FocusM.

It will help small and medium enterprises (SMEs) to export their products globally with ease, enable global marketplaces to source products from Malaysian manufacturers and sellers, and make the country the regional fulfilment hub for global brands to reach Asean buyers, he says.

 

Boost cargo volume

DFTZ will be an impetus for MAHB to grow its airline's network connectivity, including freighter aircraft movement.

Badlisham says the projected increase in the cargo volume is forecast at about 600,000 tonnes per annum by 2028. The Alibaba Group will inject the volume which includes 50% of transhipment cargo.

He says ultimately, it will double the cargo volume at KLIA to 1.25 million tonnes per annum.

“The increment will result in an increase in aircraft movements [both freighter and passenger aircrafts with belly capacity].

“This will contribute to KLIA’s air cargo and logistics ambitions and its master plan to achieve 3.5 million tonnes per annum, by 2050,” he says.

 

The DFTZ initiative has increased the attractiveness and interest of logistics facilities within KLIA.

Up to 10.5ha in the Aeronautical Support Zone 1 have been reserved to fulfil this demand, says Badlisham.

The JV with Alibaba Group involves an investment of over RM200 mil for the first phase of development.

Thereafter, it is expected to attract additional investments of RM700 mil once fully operational, he says.

 

Retail expansion

The KLIA Aeropolis’ first major retail component, Mitsui Outlet Park, will also be seeing an expansion.

Its phase two, built on a 300,000 sq ft site adjacent to the current outlet mall, is set to open its doors on Dec 15, with the official launch slated for February.

Phase 2 of Mitsui Outlet Park is expected to be officially launched next year


Mitsui Fudosan (Asia) Malaysia Sdn Bhd says with the JV between MAHB and Mitsui Fudosan Co Ltd, a leading global real estate company headquartered in Tokyo, 35 stores will be opened during its soft launch.

The extension will eventually house about 60 more shops, with the addition of some 500 car parking lots to complement the existing 140 shops and 2,100 parking lots.

It will also introduce more premium brands to the outlet and explore a new ambient experience with its Sky Walk and River Walk themes.

This is in line with the architectural concept of a “Paradise Village” applied to Phase 1 of the mall.

The Mitsui Outlet Park extension is a significant event in KLIA Aeropolis’ progress, says Badlisham, adding that once it is completed, it will be one of the largest outlet malls in Southeast Asia.

While MAHB is juggling to improve its non-aeronautical income by leveraging on the strong traffic growth at KLIA, it also has to contend with the ongoing land development surrounding its vicinity, notes Hong Leong Investment Bank Bhd analyst Daniel Wong.

“Under the initiative, MAHB first embarked on JVs for KLIA2 Gateway [with WCT Holdings Bhd] and Mitsui Outlet Park [with Mitsui Fudosan] in 2010.

“MAHB makes profits from revenue sharing, lease income and share of profits [dividend payment for its equity stake of 30% in both entities],” he says.

As MAHB did not contribute cash to the developments, both JVs have already contributed positively to its bottom line last year, he says.

 

Stable land values

Thus far, KLIA Aeropolis has not sparked an increase in property value in its vicinity, says ExaStrata Solutions Sdn Bhd chief real estate consultant Adzman Shah Mohd Ariffin.

Adzman says there is the likelihood of industrial land picking up value in areas near to KLIA Aeropolis and Subang Aerotech Park

Part of the reason is the sheer size of the project in Sepang. “For KLIA Aeropolis, the area is deep within KLIA itself. And the surrounding area is subject to restricted building height and also noise pollution controls,” he says.

“The surrounding areas of Bandar Enstek, Nilai and Seriemas have not really gone up in value. [And there are] still a lot of plantation land around Sepang. For now, I think the price will stay stable.”

As for areas near Subang Aerotech Park in Sultan Abdul Aziz Shah Airport, Adzman says areas up to Ara Damansara, Saujana and Subang Bestari have been developed well.

“So if the development is not too close [to the airport], it’s ok. But for housing land farther away from the airport like in Subang Jaya, they are sought after, especially those near Kwasa Damansara,” he says.

Adzman also says there is the likelihood of industrial land picking up value in areas near to KLIA Aeropolis and Subang Aerotech Park.

While the current land use for both KLIA Aeropolis and Subang Aerotech Park does not allow for residential development, there may be some leeway, says Badlisham.

“Long-term accommodation for the workforce at KLIA [permanent or transient] is being looked into,” he says. And it could be substantial to facilitate the additional 200,000 workers that will eventually be employed at KLIA Aeropolis.

For now, the 24ha parcel that the Subang Aerotech Park will reside on is being cleared and prepared for development. The final phase will involve a multi-storey carpark.

It has already attracted the interest of many global aerospace companies that wish to set up facilities within the Aerotech Park.

Earlier in the year, MAHB signed two memorandums of understanding (MoU) with South Korea’s Gyeongnam Techno Park (GNTP) and Denmark’s Skyway Technics.

The MoU between MAHB and GNTP is mainly on synergistic inter-park collaboration to develop Subang Aerotech Park and KLIA Aeropolis, says Badlisham.

“It is aimed at developing the respective aerospace ecosystems in both countries.

“As aerospace is one of the key areas identified to stimulate our economy, this collaboration will expand and support the industry’s future growth,” he says.

The MoU with Skyways Technics, on the other hand, focuses on collaboration efforts to facilitate its expansion plans within Malaysia Airports’ aerospace ecosystem, he says.

“Skyways Technics is setting-up a facility for its component repair workshop as well as to serve its maintenance, repair & overhaul (MRO) operations within Phase 1 of Subang Aerotech.

“The MRO Centre will be located at the former Customs building and will serve as its repair workshop, warehouse for spare parts, and office for its Asia Pacific market segment,” Badlisham says.

 

Tying up more deals

Locally, Axis Real Estate Investment Trust (Axis-REIT) is set to build an industrial manufacturing facility in Subang Aerotech Park, for England-based Upeca Aerotech Sdn Bhd (Upeca), at a total development cost of RM74.16 mil.

This follows the signing of a sub-lease agreement with MAHB to lease a 2.8ha parcel there for RM19.9 mil.

MAHB has also entered into outright lease agreements with KLAS (Pos Aviation), cargo airlines Raya Airways Sdn Bhd, low-cost carrier AirAsia Bhd and baggage logistics provider Venderlande Industries BV under the Air Cargo and Logistic segment, and RUAG Aviation Malaysia Sdn Bhd under the MRO segment last year in the two locations.

“Additionally, we have a list that includes those we have signed MoUs with, such as GE Aviation and Global Turbine Asia-Safran,” says Badlisham.

The fact that KLIA Aeropolis and Subang Aerotech Park are garnering so much interest from global companies bodes well.

Adzman says both projects are in a good position to take advantage of the increase in air traffic and MRO work. “The aerospace business is set to pick up too,” he says.

As of May, MAHB has reported passenger traffic growth of 11.8% year-on-year for its Malaysian operations. This is well above its target growth of 6.5%, says Wong.

“We are positive on the continued growth trend, which is mainly driven by growing tourist arrivals and resilient air travel demand by locals.

“We note that the non-Asean international segment recorded the highest growth at 17.7% year-on-year. This segment also contributes to higher average retail spending per passenger,” he says.

Given the strong growth year-to-date, passenger traffic growth this year is likely to be above MAHB’s targeted growth of 6.5%, he says.

These positive figures are expected to spur the growth of KLIA Aeropolis moving forward.

Synergies between the two projects

THE Subang Aerotech Park may be much smaller in terms of size and value compared to KLIA Aeropolis, but it is still a crucial component of Malaysia Airports Holdings Bhd’s (MAHB) aerospace vision.

“Today, Subang boasts a mature aerospace community that is well-known for maintenance, repairs and overhaul (MRO), training, fixed based operators and manufacturing with the presence of world-renowned players,” says managing director Datuk Mohd Badlisham Ghazali.

“These players include Spirit Aerosystems – one of Boeing’s major suppliers, Airbus Helicopter, and AgustaWestland which reside within an 8ha Helicopter Centre.

“KLIA Aeropolis is expected to augment the ready and mature Subang ecosystem,” he says.

Subang Aerotech Park is envisioned to be complementary and synergistic to KLIA Aeropolis, he says, adding that the development timelines for both projects differ.

Subang Regeneration, which is a strategic plan to revitalise the aerospace ecosystem at and around Sultan Abdul Aziz Shah Airport, popularly called Subang Airport, is mainly centred on three key pillars – City Airport, Regional Hub for Business Aviation and Complete Aerospace Ecosystem.

Subang Regeneration’s development is targeted to begin in 2019.

The project is expected to generate RM4 bil and some 1,200 jobs for the MRO component and up to RM5.2 bil and 1,900 jobs for the manufacturing component.

“For the next few years, the focus for aerospace manufacturing and component MRO will be at Subang Aerotech Park,” Badlisham says.

In the long-term, KLIA Aeropolis’ Aerospace Park and Aeronautical Support Zones, he says, will offer scalability for large-scale aerospace manufacturing and airside as well as MRO activities.

 

Ample land for expansion

OF the over 9,000ha earmarked for KL International Airport (KLIA), only 33% has so far been developed.

With a whopping 67% still available for future undertakings, KLIA Aeropolis has lots of room for expansion.

A total of 5,552ha has been earmarked for the airport and aeronautical use which includes 2,428ha reserved for airport operations.

This includes the provision for a fourth runway that would cater to an increase in total passenger capacity from 55 million to 140 million.

The remaining 3,460ha is earmarked for KLIA Aeropolis’ development, says Malaysia Airports Holdings Bhd (MAHB) managing director Datuk Mohd Badlisham Ghazali.

“The KLIA Aeropolis’ development plan is continuous. MAHB aims to create value through synergistic collaboration with its business partners.

“[This serves] to achieve mutual benefits and provide solutions in terms of supply chain, human capital, infrastructure and equipment, and technology to attract aerospace players to be part of the established ecosystem in Subang.

“Subsequently, they will expand their businesses to the main gateway of the nation, KLIA Aeropolis,” he tells FocusM.

MAHB is also looking forward to the Subang Regeneration initiative. It is a strategic plan to revitalise the aerospace ecosystem in and around Subang airport. It covers some 460ha.

MAHB is mulling the possibility of replicating the KLIA Aeropolis and Subang Aerotech Park concepts at its other airports in future, albeit at a smaller scale.

“The scale of development in each airport is influenced by opportunity and land bank availability.

“There are possibilities to develop smaller airport cities in Malaysia once KLIA Aeropolis is completed,” says Badlisham.



This article first appeared in Focus Malaysia Issue 262.