Industrial properties are an important component of the property sector in Malaysia and comprise a wide range of property types, from industrial land and stratified flatted factories to terraced, semi-detached and detached factories, warehouses and large-scale industrial complexes.
Industrial complexes can be substantial assets, particularly where they comprise large land areas and extensive built-up areas. Such developments may include several specialised buildings, such as administration blocks, production blocks, raw material storage facilities and finished goods warehouses.
Given their scale and investment value, industrial properties can command values ranging from several million to hundreds of millions of ringgit. Some notable large industrial property transactions recorded in Malaysia include:
These transactions illustrate the substantial capital value that industrial properties can represent and the importance of obtaining a professionally prepared valuation when determining their market value.
How Does a Registered Valuer Conduct a Valuation of an Industrial Property?
The valuation of an industrial property involves considerably more than simply comparing the property with recent transactions. A registered valuer will generally undertake a systematic assessment covering the property’s legal, physical, planning and market characteristics.
The first step is to establish and verify the identity and particulars of the subject property.
This generally includes:
Confirming the exact location of the property using maps, survey plans and other relevant sources;
Examining the title documents and conducting a title search;
Verifying the title number, lot number, tenure, registered proprietor, category of land use, express conditions and restrictions in interest;
Reviewing approved building plans and relevant approvals;
Checking the planning approval and, where applicable, the Certificate of Completion and Compliance (CCC) or relevant historical Certificate of Fitness for Occupation (CF);
Establishing the dimensions, floor areas, building height and eaves height of the industrial buildings; and
Identifying any additions, extensions, renovations or other improvements.
Where appropriate, the valuer may also undertake planning checks with the relevant local authority to establish the property’s zoning, permissible land use, plot ratio and other planning parameters.
A physical inspection is an important part of the valuation process.
During the inspection, the registered valuer will generally:
Confirm the location and accessibility of the property;
Verify the physical characteristics against the approved plans and information provided;
Inspect the site layout and buildings;
Record the building specifications, including building structures, flooring, walls, ceilings, doors, windows and other finishes;
Assess the general condition of the buildings and improvements;
Consider the age of the buildings and any renovations, extensions or upgrading works;
Observe the existing use and occupancy of the property; and
Identify any physical characteristics or defects that may have an impact on value.
For specialised industrial properties, additional attention may be given to factors such as floor loading capacity, clear height, column spacing, loading bays, cranes, cold storage facilities, specialised plant and machinery, and other purpose-built improvements, depending on the nature of the property and the scope of the valuation.
The valuer will review the relevant legal and planning information to establish the property’s development and use potential.
This may include conducting a title search with the relevant Land Office to verify the title particulars furnished by the client and examining:
Tenure and remaining lease term;
Category of land use;
Express conditions;
Restrictions in interest;
Easements or other relevant title matters;
Existing planning approval;
Land-use zoning;
Permitted development or use; and
Permissible plot ratio or other development parameters, where relevant.
For properties located within areas subject to specific planning controls, reference may also be made to the applicable local plan and other planning documents.
After gathering the relevant property information, the valuer will select the appropriate valuation method and analyse comparable market evidences.
For industrial properties, the Comparison Method, Cost Method and Investment Method may be applied, depending on the nature, use and characteristics of the property.
The choice of method will depend on factors such as whether the property is owner-occupied, income-producing, purpose-built, specialised or readily comparable with other properties in the market.
Comparison Method
For industrial land and conventional industrial properties, the Comparison Method is commonly adopted where sufficient market evidence is available.
Under this method, the value of the subject property is assessed by comparing it with similar properties that have recently been sold or are currently being offered for sale.
Appropriate adjustments are made to reflect differences between the comparable properties and the subject property. These may include adjustments for:
Time lapse, location, tenure, land and building size, plot shape, accessibility, visibility and frontage, terrain and site levels, development potential, building specifications and condition; and other positive or negative attributes affecting value.
Comparison Method and Cost Method (Combination)
For an improved industrial property and individually designed properties, the analysis may consider both the underlying land value and the contribution of the existing buildings and improvements. A combination of Comparison and Cost Methods will be engaged.
In the Comparison Method, the value of the site is determined by comparison with similar lands that have been sold recently and those that are currently being offered for sale in the vicinity with appropriate adjustments made to reflect improvements and other dissimilarities and to arrive at the value of the subject land as an improved site. The adjustments including but not limited to time lapse, location, tenure, plot shape, plot size, accessibility and visibility, terrain level, negative and positive factors.
In the Cost Approach, the value of the land is added to the replacement cost of the building and other site improvements. The depreciated replacement cost of the building is derived from the estimation of reconstructing a building of same kind and design as when new based on current market prices for materials, labour and present construction techniques and deducting therefrom the accrued depreciation due to use and disrepair, age and obsolescence through technology and market changes.
Example of Combination of Comparison and Cost Methods Calculation
For illustration, assume a 10-year-old detached factory with a gross floor area of 25,000 square feet, erected on a plot of industrial land measuring 1 acre (43,560 square feet).
Land Value
43,560 sq ft × RM250 per sq ft = RM10,890,000
Building Value
Replacement cost : 25,000 sq ft × RM200 per sq ft= RM5,000,000
Assuming accrued depreciation of 15% :
Depreciated Building Value = RM5,000,000 × 85% = RM4,250,000
Market Value = Land value + depreciated building value:
RM10,890,000 + RM4,250,000 = RM15,140,000
Say RM15,100,000
This is a simplified illustration only. In an actual valuation, the valuer would consider the property’s specific characteristics, construction quality, condition, age, functional utility, site improvements and prevailing market evidence.
Investment Method
The Investment Method may also be adopted for industrial properties that are let or capable of generating rental income. It may be used as the principal method or as a cross-check against the value derived under other approaches.
In the Investment Method, the annual rental income currently received or expected for the lease of the premises is estimated and deducted therefrom are the expenses or outgoings incidental to the ownership of the property to obtain the net annual (rental) income. This net annual income is then capitalised by an appropriate capitalisation rate or years purchase to arrive at the present capital value of the subject property. The capitalisation rate chosen is based on comparisons with returns on similar properties as well as the investment rates of return to be expected for similar properties taking into consideration such factors as risk, security of income, ease of sale, management of the subject property as well as overall economic factors.
To have a basic understanding of this method and explanation of how tenancy can influence property value, you may refer to our earlier article titled “Does Tenancy Affect Property Value”, (https://www.agilitymy.com/insight-en/does-tenancy-affect-property-value/).
After gathering the necessary information from the client, undertaking the site inspection, conducting the relevant searches and analysing market evidence, the registered valuer will prepare the valuation report in accordance with the applicable Malaysian Valuation Standards and the terms of engagement.
At Agility Valuers & Property Consultants, an ordinary industrial property valuation report may generally include the following:
Executive Summary, Terms of Engagement, Subject Property, Purpose of Valuation, Date of Inspection, Date of Valuation, Definition of Market Value / Forced Sale Value / Fire Insurance Value (if applicable), Title Particulars, Location, Description of the Subject Property, Occupancy, Services, Assessment, Planning Control, Method of Valuation, Evidences of Value, Opinion of Value, and Appendices / Exhibits / Annexures (where applicable).
The exact scope and contents of the report will depend on the purpose of the valuation, nature of the industrial property, information available and the requirements of the client.
To have a clearer picture of the valuation report contents, you may refer to our article titled “Valuation Report : Format and Contents”, click https://www.agilitymy.com/insight-en/valuation-report-format-and-contents/.
At Agility Valuers & Property Consultants, we provide professional valuation services for industrial land, factories, warehouses and other industrial properties for purposes including sale and purchase, accounting, taxation, internal asset assessment, investment decisions, litigation and other professional requirements.
Frequently Asked Questions
Industrial properties can be high-value assets involving substantial land areas, large buildings and specialised facilities. A professional valuation provides an independent opinion of value based on the property’s legal, physical, planning and market characteristics.
The valuer will generally verify the property’s title and legal particulars, inspect the physical condition of the property, review approved building and planning documents, and assess factors such as land use, building specifications, accessibility and development potential.
Depending on the characteristics of the property, the Comparison Method, Cost Method and Investment Method may be used. For individually designed or specialised industrial buildings, a combination of the Comparison and Cost Methods may be appropriate.
Yes. The valuer considers the building’s age, condition, renovations, extensions and improvements. Under the Cost Method, depreciation may also be deducted to reflect physical deterioration, age, use and obsolescence.
A typical report may include the executive summary, terms of engagement, property and title particulars, location, property description, occupancy, planning control, valuation methodology, market evidence, opinion of value and relevant appendices or annexures.
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