Property
Picking up the pace at Senai Airport City
Doreenn Leong 
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The Hershey Co’s manufacturing plant cuts a lonely figure in the vast 161.87ha Senai Airport City (SAC) Free Industrial Zone in Johor.

North America’s biggest chocolate maker, which invested some RM816 mil in its single largest manufacturing plant in Asia, occupies about 30% of the total area of the SAC free zone. This facility is also Hershey’s single largest investment in Asia in the 18 years of its presence in the region.

The 700,000 sq ft state-of-the art confectionery manufacturing plant officially opened its doors in April last year and Senai Airport City Sdn Bhd (SACSB) was to have filled up the free zone this year but things did not pan out as planned.

SACSB general manager Gan Seng Keong tells FocusM that it had targeted to achieve 100% take up rate for the free zone in 2018 but was hampered by the slowing market.

 

Withdrawal of Fuji Oil

In fact, Japanese food products supplier Fuji Oil Asia Pte Ltd, which is part of the Fuji Oil Group, entered into a RM53.9 mil lease agreement with SACSB in September 2015 for 60 years to construct and operate its manufacturing facility on about 10ha of the SAC industrial land. However, the lease did not materialise.

“In end-2016, Fuji Oil decided to withdraw its investment in Malaysia due to the absence of the TPPA (Trans-Pacific Partnership Agreement which Malaysia has yet to sign), hence adversely impacting its intended exports to the US and Japan,” Gan explains.

Despite the setbacks, he reckons it will be able to achieve a full take up rate at the free zone in SAC in the next two years given its active roadshows to promote the industrial park and improving market sentiment.

Gan adds that it is eyeing multinational companies which are looking to set up a regional distribution hub in Johor or local companies wanting to shift their premises or facilities to a new industrial park with enhanced amenities from older industrial parks.

Its other targeted industries include logistics or regional distribution centres, fast-moving consumer goods supply chain of current investors and manufacturers in surrounding areas.

“We are already engaging with a few multinational and local companies (and) we hope to conclude the negotiations by the first quarter next year. (For) Most of these companies, their timeline to be operational is 12 to 18 months. So, we are expecting to see more companies operating in SAC by 2020,” he says.

Gan adds, SACSB is in talks with 12 companies, including multinational and manufacturers, to establish their facilities in SAC.

SACSB, which is a wholly-owned subsidiary of MMC Corp Bhd, is the land owner and master developer of SAC, covering 1,100ha of industrial park.

The entire masterplan is being developed in five phases. The first phase, covering 486ha, has seen a 50% utilisation.

The Free Zone area allows for the exemption of import and export duties for manufactured products, so long as 80% of the finished goods are for export.

 

Interest from smaller and medium industries

“Now, smaller and medium industries have also shown greater interest (in setting up shop in SAC). There could be a spillover to the free zone from existing companies in i-Park@Senai Airport City and Eco Business Park II, which are looking to expand their facilities,” Gan says.

The two main developers in SAC - AME Development Sdn Bhd and EcoWorld Development Group Bhd - develop and manage I-Park@Senai Airport City and Eco Business Park II respectively.

Essentially, companies looking to set up factory on less than 1.21ha land can opt for i-Park@Senai Airport City, which offers a mix of Green Building Index compliance semi-detached and detached industrial factory, or Eco Business Park II, which comprises ready-built factories suitable for SMEs.

Companies that require larger plots can set up their facilities at the free zones in SAC.

In addition to logistics and food-related companies, SAC is also targetting hi-tech and green manufacturing, electrical and electronics, aerospace manufacturing and maintenance, repair and overhaul (MRO).

Gan says SAC offers key infrastructure which are important for companies to set up their manufacturing facilities. These include ready converted land, completed earthworks, utilities and a waste management system.

He says SACSB has forked out some RM500 mil to develop common infrastructure and utilities in that area as it is crucial for the investors to see all these facilities ready before they decide to move in.

“If they go to a piece of standalone land, they have to convert the land to agricultural or industrial use and construct its utilities. Over here, everything is provided. That is the value proposition to the investors,” Gan adds.

Companies established in the SAC free zone enjoy various incentives under Iskandar Malaysia, the main southern development corridor in Johor, including pioneer status, investment tax allowance and approved developer status.

SAC is strategically positioned close to two international airports, Senai International Airport and Changi International Airport, allowing it to also leverage on Singapore’s economic advantages.

The industrial park is also located between two major southern seaports - Port of Tanjung Pelepas in Gelang Patah and Johor Port in Pasir Gudang.

The airport city is also connected via three major highways — the North-South Expressway, the Malaysia-Singapore Second Link and Senai Desaru Expressway Bhd.

 

Mismatch in demand

and supply

While Gan is rather optimistic on the growth in demand for land in SAC, not many are positive on the pick up in demand.

“The industrial players or investors will have difficulties in getting tenants due to a mismatch between demand and supply of industrial properties,” Rahim & Co International Sdn Bhd Director of Johor branch Loo Kung Hoe tells FocusM.

As it is, the number of property transactions in the industrial sector declined last year given the slower economy growth. He does not see a pick-up in industrial transactions in Johor since the economic growth is still slow.

Loo adds that to encourage companies to set up their manufacturing facilities in Johor, tax exemptions/incentives, labour incentives and more liberal issuance of manufacturing licences can be introduced.

According to the Rahim & Co International Sdn Bhd Property Market Review 2017/2018, the supply of industrial properties in Johor stood at 16,117 units in 1H2017. comprising mostly terrace factories (at 47.8% of total share). Next are semi-detached

and detached factories (24.9% and 22.8% respectively).

The reports points out that in Taman Perindustrian Cemerlang, terrace factories were transacted at an average price of RM1 mil while transactions of semi-detached units in Tiong Nam Business Park Kempas II were priced around RM3.5 mil and similar types at Setia Business Park II were transacted at RM3.9 mil per unit.

“There is concern for industrial units priced above RM1 mil as these unsold completed properties constituted about 48.6% of the total launched units of 640,” it adds.

 

Highest incoming supply

“With Johor having the highest number of incoming supply in Malaysia at 30.0% (1,821 units) from the overall 6,064 units, greater competition with the secondary market will be expected along with the risks of an oversupply in Johor’s industrial property market,” the report adds.

Johor witnessed the launch of the biggest Industrialised Building System (IBS) factory by the master developer of Forest City. With a projected cost of RM2.6 bil, this 168.7ha development will house six factories to be built in two phases and is set to be the largest of its kind in the world.

Rahim & Co expects another catalyst for the industrial sector in Johor in the form of the Verde Palm Plant, the world’s first bio-based chemical manufacturing plant, expected to be operational by 2019.

Meanwhile, UEM Sunrise Bhd launched its industrial park, Southern Industrial & Logistics Cluster Phase 3, and has secured industrial players such as Crown Worldwide Group for the warehouse facility of corporate documents and Luxx Newhouse Group, Asia’s premier solid surface, technological quartz and high-end furniture & interior solution provider.

It remains to be seen if SAC can defy the odds to turn into a vibrant industrial park, pulling in the right tenants and help boost the economy of the Southern state. FocusM.



This article first appeared in Focus Malaysia Issue 311.