Caution prevails in industrial property sector

Business Times: Tue, Oct 11

LATEST research from two property consultancy firms is backing the view that caution has taken over the industrial property sector.

Reports released by DTZ and SLP International Property Consultants show that industrial rental growth rates moderated in the third quarter from the second – a trend that looks set to continue in the coming months given the economic and financial woes facing the Eurozone and US, which are among the world’s top consumers.

Said SLP in its report: ‘As global demand for goods and services continues to soften, Singapore’s export-oriented economy will have to brace itself for an eventual slowdown.

‘Compared to the residential property market, the industrial real estate sector is more susceptible to economic conditions and external shocks. On the back of a declining manufacturing sector, demand for industrial space can also be expected to feel the impact as firms scale down their operations or put on hold any expansion plans.’

DTZ Research noted that the average rent for hi-tech industrial properties, which includes business space, was unchanged in the third quarter from the three months before. Rent per month for the July-September period stood at $3.45 per sq ft.

The average rent for upper-storey private industrial space also remained unchanged from Q2 at $1.75 per sq ft per month.

DTZ believes that industrial rents could face downward pressure in the near term. It noted that in August, the seasonally-adjusted manufacturing output, excluding biomedical manufacturing, contracted 4.7 per cent month-on-month, and 10.5 per cent year-on-year.

A ‘substantial supply’ of private industrial space could also put pressure on rents. About 19.8 million sq ft of private industrial space is expected to be completed this year and next, said DTZ. This includes Ubi.1 and West Point Bizhub, which were issued temporary occupation permits in August and October, respectively.

Major industrial developments expected to be completed next year include Changi City, North Point Bizhub and Hyflux Innovation Centre.

Said DTZ’s executive director of business space Cheng Siow Ying: ‘We expect rents to stay flat in the near term with downward pressure as demand for industrial space is likely to remain subdued while a substantial supply of private industrial space is expected to be completed in 2011 and 2012.’

Numbers provided by SLP also support the story of a weaker outlook for the industrial property sector. According to SLP, overall factory rent grew by 8.6 per cent quarter-on-quarter in Q3, the same as in Q2.

SLP also noted that all three pieces of industrial land sold by the government in July till September under the Government Land Sales (GLS) programme attracted below 10 bids each. This is unlike the first six months of this year, where three of the six sites up for grabs attracted more than 10 bids each. This signals ‘a more subdued developer sentiment’, said SLP.

Another sign that caution has overtaken the business is the lower bid price that an industrial GLS site at Woodlands Ave 12 drew when the tender closed in September.

DTZ and SLP noted that the 60-year leasehold plot saw a top bid from OKH Development of about $71.84 million, or $142 per square foot per plot ratio – 6.6 per cent lower than the $152 psf ppr that OKH had paid for the next-door plot at a tender in June this year.

Said SLP: ‘In the event of a bearish economy with decreasing output, most businesses will be expected to scale down their operating space, translating to an accumulated cutback in overall demand for industrial space. This will in turn effect a significant price correction in the industrial sector, as investors of such space would feel hard-pressed to offload should leasing demand register a persistent decrease.’
Source: Business Times © Singapore Press Holdings Ltd.

 

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