Sustainable practices in real estate market set to create a positive impact, says Knight Frank Malaysia

• “The emergence of well-planned and professionally managed industrial parks shows the transitional shift toward a new generation of industrial developments with an emphasis on ESG attributes and advanced technology adoption.”
• Green-rated industrial developments have seen solid growth over the years

KUALA LUMPUR (Dec 28): ESG (environmental, social, and governance) is collectively driving sustainable operations and performances, and will continue to impact real estate markets positively, Knight Frank Malaysia stated in its  white paper, The Age of ESG.

The first in a series of ESG-focused research specific to local real estate, the paper is focused on the industrial sector with more sector-specific papers to be released throughout the coming year.

According to the report, numerous concerted global efforts such as United Nations’ Paris Agreement, 17 Sustainable Development Goals (SDGs), and Net Zero Coalition have solidified the popularity of the sustainability agenda over the years.

Malaysia is also committed to carbon-neutrality pledges via its 12th Malaysia Plan of lowering greenhouse gas emissions by 45% of the nation’s GDP by 2030 and becoming a carbon-neutral country by 2050 at the earliest, plus sustainability-related tax incentives being rolled out under a number of government initiatives.

Meanwhile, leading local companies are implementing initiatives towards carbon-neutral operations on top of elevating social and governance standards as the industrial sector is often labour intensive with large energy and carbon footprint, stated Knight Frank

“With time, industrial parks that had little to no central management, have taken various forms such as an agro-industrial parks (AIP), eco-industrial parks (EIP), and smart industrial parks (SIP).

“The emergence of well-planned and professionally managed industrial parks shows the transitional shift toward a new generation of industrial developments with an emphasis on ESG attributes and advanced technology adoption,” it added.

Allan Sim, executive director of Land and Industrial Solutions, Knight Frank Malaysia revealed that: “The new generation of industrial parks should be well-planned master industrial developments capable of attracting high-value industries by pivoting on ESG fundamentals and technology advancements. This will further strengthen Malaysia’s position as a key destination for high-value manufacturing and global services in Asia.”

According to Knight Frank’s paper, EIPs have “gained traction as an instrument to implement inclusive and sustainable industrial development in line with the SDGs”, with examples of existing EIPs being the Industrial Zone NO-Sud, Austria, and the Ulsan Mipo and Onsen Industrial Park, South Korea.

In Malaysia, green-rated industrial developments have seen solid growth over the years. The gross floor areas (GFA) of GBI (Green Building Index)-rated industrial developments (new constructions and existing buildings) have grown significantly from circa 400,000 sq ft in 2013 to circa 9.4 million sq ft in 3Q2022.

Selangor, for example, has its Smart Action Plan 2025 with the goal of becoming a Regional Smart State by 2025. Under this plan, it has introduced the Selangor Managed Industrial Park (MIP) Standard Guidelines, a development standard focusing on sustainable industrial park developments of no less than 200 acres in size.

Some of the managed industrial parks and green industrial premises that integrate ESG elements into the developments include Elmina Business Park in Selangor by Sime Darby Property, i-Park@Senai Airport City in Johor by AME Development Sdn Bhd and Western Digital Batu Kawan in Penang.

“It is essential to foster resilience in real estate portfolios by anticipating risks and minimising the disruption from all corners following the increased emphasis on sustainability and climate change mitigation through ESG frameworks,” said group managing director of Knight Frank Malaysia, Sarkunan Subramaniam.

Knight Frank also touched on ESG playing its role “with the backlash of the pandemic as the inadequate and unsanitary living conditions of workers became magnified by workplace cluster outbreaks”.

It worked closely clients to introduce “the very first professionally managed workers’ accommodation within Klang Valley”. This was accomplished by securing the largest international provider of professionally managed workers’ accommodation in Singapore & Malaysia – Centurion Westlife to manage 6,000 beds of Purpose-Built Workers’ Accommodation in partnership with the state development arm of Selangor in Petaling Jaya.

“It is imperative that real estate companies continue to be forward-looking and implement ESG initiatives to protect their assets while driving the new generation of industrial developments, comprising master industrial developments that are efficiently planned and managed as a complete self-sustaining industrial ecosystem,” said Knight Frank.