It’s about time Southeast Asia offered business an alternative to choking, congested capitals. Spiralling rents can dull ­Singapore’s lustre while masses of tourists overwhelm the charms of Phuket and Chiang Mai. But hope now flickers. George Town, a knot of 19th century streets lined by stout colonial shophouses (stores opening directly on to the street with the shopkeepers’ accommodation above them) surrounded by languid, leafy ­avenues of bungalows and houses, is stepping out of the shadows.

Life in George Town is slow. After the Second World War, the city lost its status as a major colonial trade hub to Singapore and Hong Kong. But its relaxed pace is now giving it a competitive edge. “There’s a fantastic atmosphere, it’s safe, it’s affordable. It’s big enough to provide everything you need, including great international schools, without being overwhelming,” says Craig Marcombe, an Australian marine business consultant.

Marcombe began spending time around George Town while shipwrights were repairing the family’s catamaran, left high and dry by the tsunami in 2004. Impressed, Marcombe’s family settled in George Town in January 2007 and his father-in-law, John Ayres, soon followed. Ayres’s firm Sea Gyro plans to manufacture gyroscopes for yachts and small vessels. Marcombe, meanwhile, heads to Singapore every month to work as a consultant on a yacht marina.

Hans Brenner, a German medical technologist who set up a consulting practice in George Town three years ago, says the location is convenient for visiting clients in China and India. “For work, I have to transit for flights to many places, but it only takes me 10 minutes to get to the airport,” he says in his George Town office with its views of Penang’s peaks and the azure sea. “The government here is very business-friendly, a lot more active than other states in Malaysia. It really does try to help,” he says.

The environment is also seen as safe for intellectual property – an important factor for small firms. “India, like China, has a lot of problems with IP protection. Even when we offered a facility there staffed by expats, clients still said no,” says Michelle Peake, an Australian who last December opened a facility in George Town to produce proteins for new medicines made by British firm Alpha Biologics.

David Green traded Melbourne’s suburbs for a George Town bungalow three years ago to establish a factory for Australia’s GBC Scientific Equipment. He is impressed by the local approach to business. “It still surprises me how easy it is to deal with the local suppliers for the low-volume boutique manufacturing we require. The local companies will negotiate, while in Australia it’s very stifled.”

Business know-how is also becoming easier to find locally. “We can help traditional companies add value by turning them into technology-based companies. They can anchor into the local scientific base at very low cost; it can be very competitive,” says Dr Gan Ee Kiang, a pharmacologist with the Universiti Sains Malaysia’s commercial arm, Eureka.

Eureka is negotiating with an Australian firm to exploit a university patent for allergy-testing proteins and is talking to Japanese investors about developing solar energy products. Meanwhile, a few dozen start-ups are working in Eureka’s incubator laboratories on the leafy campus south of George Town.

It is not all sunshine and blue skies, however. Malaysia is still a developing country, with a developing infrastructure. “All the locals are complaining about traffic, but it’s nothing really, except perhaps on a Friday night. The water quality could be better, but there’s a 1bn ringgit [€209m] water plant due to open this year,” says Brenner.

Unlike many Southeast Asian cities, George Town has not been razed for wholesale redevelopment. Consequently, the community is strong and many of the shops and restaurants are family owned, which is probably why the food is so good.

George Town’s derelict shophouses that pepper the winding lanes and the idle villas along the avenues of the outer districts are poised for a new life as offices for creatives, consultants and entrepreneurs. The situation is reminiscent of Singapore in the 1990s when developers began cashing in on the few shophouses remaining behind the skyscrapers.

Now their attention has turned to George Town. Asian Global Business is refashioning 19th-century mansions and the towering Malayan Railway building on Weld Quay into offices, apartments and a hotel. Around the corner on Beach Road, Perlis Plantations, which is owned by Robert Kuok, chairman of Shangri-la Hotels, is refurbishing Whiteaway’s Arcade with upmarket shops and offices.

Meanwhile, a flock of tower cranes perch on George Town’s western fringe, where a marina and apartments are being built for Eastern and Oriental Property. Plans include a string of man-made islands. A conference centre may appear in George Town’s southwestern suburbs if the controversial Penang Global City Centre project gets approval. Some renderings portray a forest of 30 to 40 towers, which upsets many locals.

For Jeffrey Juday, who moved from Kuala Lumpur in December to build a footprint in Asia for US internet consultancy Newfangled, all roads lead to George Town. “As technology shrinks our world, it puts places like this on the radar,” he says.

Most people use agents to guide them through the rich stock of property, from ocean-view condominiums to colonial bungalows and mansions and Art Deco houses. “Places expats tend to go for start at €1,000 upwards for 300-400 sq m, but there are some paying€400 and even less,” says Mark Saw of Malaysian Institute of Estate Agents. Buying property is similar to in the UK — either the buyer or the seller pays conveyancing and agent’s fees. Grade A offices are around €6 per sq m, but supply is tight.

For most people it’s either a car or a motorbike. Taxis refuse to use meters and are generally in poor condition. Shiny new buses have been introduced, although locals complain of poor service, and a €335m monorail running on two lines out of George Town is in the works. There is also talk of reviving trams. A new expressway is planned around the town’s fringe and a soft loan from China will see the second bridge, 24km long, open to the mainland by 2011.

A double-tracking project could cut train trips to Kuala Lumpur from six to two and a half hours in five years. There are daily flights to Bangkok, Kuala Lumpur, Singapore and Hong Kong.

A decade ago a big night was karaoke or hanging out at a tea shop. Since then George Town has become somewhat hip. The choice of restaurants is rich and usually dependable. To escape the heat head for the cool peaks above town. “Behind my house there’s one row of houses, then jungle with monkeys up the mountains,” says medical technologist Hans Brenner. Armenian Street’s galleries are headquarters for a fledgling art scene.

Locals are a relaxed, easy-going bunch. A humble cobbler made his way to London and has never looked back since opening Jimmy Choo on Bond Street. Choo is now planning to open a shoemaking institute in Malaysia. Developer Patrick Lim has been criticised for his Penang Global City Centre, which some see as a ploy to tap Arab petro-dollars. Dr Noirani Abdullah seems more welcome because of her thoughtful Weld Quay development. Sugar king Robert Kuok’s interest in Whiteaways Arcade is worth following; he is, after all, the richest man in Southeast Asia.