ESG transforms Malaysia's industrial and logistics market

Malaysia's industrial and logistics sector stands at the threshold of a fundamental transformation. What began as an emerging trend has become a market-defining force, as sustainability features that were once considered optional have evolved into essential market requirements. This evolution is reshaping how investors, developers, and tenants evaluate warehouse facilities across the country.

The numbers support this paradigm shift. Green-certified warehouses are dramatically outperforming conventional facilities, achieving 30% faster occupancy rates than their traditional counterparts. This performance advantage reflects a broader market transformation, where sustainability has become a decisive factor in tenant selection criteria. The trend is particularly pronounced among Malaysia's key industrial sectors, with Electronics & Electrical (E&E) manufacturers, food manufacturing companies, and aerospace enterprises actively seeking facilities that meet stringent environmental standards to satisfy global supply chain mandates.

Recent market developments showcase this evolution in practice. Several projects with green features, which were completed in 2024, have achieved occupancy rates exceeding 90% within 12 months of completion. This performance contrasts with conventional warehouses, which typically require 18-24 months to reach similar occupancy levels. This provides clear evidence of growing tenant preference for sustainable logistics solutions across the market.

Figure 1: Occupancy rate performance, 2Q 2024 – 3Q 2025

Source: JLL Research, 2025

However, this surging demand confronts a significant supply challenge. Currently, only 5-10% of Klang Valley's total logistics space holds green certification, creating substantial supply-demand imbalances that heavily favour sustainable facilities. This scarcity drives competitive advantages for certified properties and encourages developers to integrate green certification principles into new projects, including both warehouse facilities and industrial parks.

The market has responded swiftly. Property owners and developers, encouraged by success stories like Metrohub, ALP Omega and other green projects, are experiencing higher confidence levels. Many who previously hesitated due to market demand concerns now actively pursue green retrofitting initiatives. Based on market research, approximately 62% of the future total stock will achieve green certification, representing around 11 million square feet of green space by 2028.

Government policy initiatives are providing additional catalysts to accelerate this transformation. The government has introduced carbon tax implementation alongside the My HIJAU GITA incentive programme, encouraging companies to adopt certified green technologies. This is boosting the demand for sustainable properties. Developers are responding by incorporating key ESG features, such as energy-efficient LED lighting, solar panels, rainwater harvesting, EV charging infrastructure and smart building management systems into logistics and industrial developments. These comprehensive policy measures and proactive developer integration will drive sustained industrial demand while supporting stringent ESG requirements, creating powerful impetus for green space development. 

Figure 2: 2026 Environmental Sustainability Measures Budget Plan

Source: JLL Research, 2025

Looking forward, developers are expected to increasingly adopt ESG concepts more frequently to remain competitive in Malaysia's evolving industrial real estate market. As the country continues to strengthen its strategic role as a regional logistics hub, the increasing adoption of ESG principles will drive green supply capacity to expand significantly by 2026-2027. However, early adopters who recognise these trends will be best positioned to capture value from this transformation.