Tag Archives: Industrial Property

Industrial property likely to stay mixed in Q4

SINGAPORE’S industrial property market is expected to remain mixed in the fourth-quarter of 2014, given the presence of persistent downside risks, which include uncertainties surrounding the global economic recovery and the traditional year-end holiday lull.

Colliers International on Thursday said in its report that replacement anchor sub-tenants will be harder to find when secondary industrial space becomes available from expiring sale and leaseback transactions.

Chia Siew Chuin, director of research and advisory at Colliers, said current anchor sub-tenants leasing space from third-party facility providers will enjoy stronger bargaining power in lease-renewal negotiations.

“This could hurt rents and yields achievable by the third-party facility providers in the medium term,” said Ms Chia, who added that rents for business parks and independent high-specs buildings are expected to hold steady in Q4, similar to Q3, mainly because of a tightening in supply.

But the prime conventional industrial segment, would probably have rents easing marginally further in Q4 on supply pressures, said Ms Chia.

Sale of strata-titled industrial properties is expected to remain slow, with the likelihood that the number of caveats lodged for the entire year will be below the 2,000-level.

The last time fewer-than-2,000 caveats were lodged for strata-titled industrial properties was in 2009 at about 1,500.

Ms Chia added that the average capital values of prime freehold conventional warehouse and factory space are expected to remain at their current levels in the next quarter.

The mixed outlook comes on the back of a muted industrial property market here in Q3, despite a stable stream of leasing activity.

Sale transactions of strata-titled industrial properties in Q3 fell by about 36 per cent quarter-on-quarter to 203, according to URA Realis caveats.

DTZ Research said this is way below the 672 strata-titled units that were sold in the same period last year. So far, there has been 842 transactions this year, much lower than the 1,986 in the same 2013 period.

DTZ said the decline in transactions was due to fewer new launches, seller’s stamp duty measures, as well as the implementation of the Total Debt Servicing Ratio (TDSR) framework last June.

Both average capital and rental values of conventional industrial space have also stagnated, while business park rents bucked the trend and continued to rise in Q3.

The average monthly gross rents for business parks continued to increase by 2 per cent quarter-on-quarter in Q3 to S$5.00 per sq ft, said DTZ.

Still, business park rents are lower than office rents and the former is drawing more office occupiers, said Cheng Siow Ying, DTZ’s executive director of business space.

“The difference in rents can be as high as 30 per cent, compared with the average office rents in the decentralised areas,” she said.

The downward pressure on rents for conventional industrial space might continue, said DTZ.

A total of 40.7 million sq ft of industrial space is expected to be completed by 2016, of which 27 per cent are multiple-user factories.

Lee Lay Keng, DTZ’s regional head (South-east Asia) research said the large supply in 2016 is “likely to restrain rental growth”.

“The older business parks may find it increasingly difficult to retain and attract tenants alongside these newer business parks,” said Ms Lee.

CBRE said in its report that the difference in rents between business parks located in the city fringe and those in the rest of the island has widened further in Q3 this year.

Michael Tay, executive director, office services at CBRE said: “Occupiers are more keen on higher specifications, quality developments which the city fringe has been able to provide. The location and connectivity are also important considerations which prompt occupiers to pay the premiums in rent. “

Buoyant strata sales raise challenges

The industrial property segment probably benefited more than the office and retail segments after investors were diverted to non-residential sales following the Government’s measures to cool the housing market last year.

A record 1,822 industrial units were transacted last year and the buying momentum continued into the first quarter of this year. The quarter saw 478 strata factory transactions, up about 21 per cent from the previous three months.

The popularity of industrial property as an investment derives from sound economic fundamentals and lower costs of entry compared to other property types.

The implementation of the residential property cooling measures has also made housing market transactions more illiquid and motivates investors to consider industrial properties.

As many strata industrial properties can also be used partly for offices, it appears that the demand base is fairly wide. Although the office use should be for related businesses or in approved office-cum-industrial spatial portions, there are some who may have bypassed the rules, creating a perception that such uses can be explored for new property owners and investors.

The past decade has nurtured numerous industrialists who are more financially confident in buying their own properties for business operations. In light of rising rentals, many businesses are looking to purchase industrial properties to have better control over business costs.

Conversely, there are some businesses that seek opportunities for “sale and leaseback”, such that the cash can be used for their core businesses. For some industrialists who want to expand regionally, this may free up funds tied up in local fixed assets to venture abroad.

Together these have contributed to ample buying interest and sellers’ willingness to part with their property.

Sound economic fundamentals, a lack of restrictions like those in the housing market and the low price quantum set the stage for strong strata industrial property buying last year and the first quarter of this year. But the run-up in prices may have superseded economic fundamentals in the short term, as the rents envisaged by investors may not pan out as the economy experiences challenges in an increasingly jittery global environment.

Also, any tightening in industrial property regulations will defeat the investment objective of those who are considering renting to non-legitimate users to maximise returns. These landlords will have to switch back to a smaller pool of tenants and may not see their investments justified, as the price paid for the property was in anticipation of renting to tenants with bigger budgets.

As such, investments in industrial properties are unlikely to result in supernormal profit.

Over the longer term, competition is also expected to increase among industrial properties as the cluster gains more market attention.

The “awakening” also sets the premise for new innovation and rejuvenation of industrial property offerings, especially those that have excellent primary attributes, such as proximity to new MRT stations completed along the Circle Line.

More industrial estates are also expected to be considered for possible rejuvenation. New buildings, especially those that create a niche for selected industry clusters and which may be able to achieve economies of scale by providing added infrastructure, will add on to the competition.

To attract or retain industrialists, owners of generic industrial properties will have to adopt flexible or competitive rental pricing.

An intent industrial property investor should critically examine the demand base of the property, be prepared to lease fundamentally to conventional technology-related tenants and understand competing new developments that may subsequently become “industrial property hotbeds’”.

Source : Today – 2012 Jun 1