Hot Property: Industrial real estate

Straits Times: Sat, Jan 28

FACTORIES and warehouses were the top-performing real estate sector last year, thanks to robust demand for industrial property.

Prices shot up 27.2 per cent over 2010 while rents rose 15.5 per cent. In comparison, prices for office properties were 13.8 per cent higher and prices for shop properties edged up 5.3 per cent.

The numbers released by the Urban Redevelopment Authority yesterday reflect the way investors shifted focus to industrial space last year in response to tougher buying rules to cool the booming residential property.

The economic improvement also contributed to the surge in demand.

Mr Lee Sze Teck, senior manager for research and consultancy at DWG Group, said: ‘Tenants that signed rents in 2008 would have been grappling with the financial crisis and would have been able to negotiate a lower rental.

‘Rents typically last three years, so when they came up for renewal in 2011, rents could have been higher due to the more optimistic economic outlook as compared to 2008.’

Other analysts have attributed the price and rental growth to the record take-up rates.

‘Factory space occupancy rate in the fourth quarter of 2011 achieved a three-year historical record with 93.2 per cent take-up of available space island-wide,’ said Mr Nicholas Mak, head of research at SLP International.

He added that occupancy rates at warehouses performed even better, hitting 94.3 per cent, the highest recorded figure since 1996.

Several new industrial developments have been asking for significantly higher prices. Oxley Bizhub in Ubi has achieved a selling price of about $612 per sq ft, well up on the average $400 per sq ft price that similar properties in the area are going for.

An increase in the amount of industrial state land released for sale could also have contributed to the overall lift in prices, said analysts, with developers increasingly submitting higher bids in the hope of securing land in order to meet investor demand.

While 2010 and last year were bumper years, the strains are already showing with experts saying a slowdown is imminent, in line with anticipated weaker economic growth.

Industrial sector rent and price growth in the final three months of the year was the slowest for the year.

Fourth-quarter prices were up 4 per cent compared with a 6.9 per cent expansion in the preceding quarter while rents rose 0.4 per cent, well under the 2.4 per cent expansion in the three months to Sept 30.

Mr Mak said these figures indicate the sector’s weakest growth since 2009, a time when the industrial property market was beginning its recovery from the global financial crisis.

A total of almost 38 million sq ft of space is in the pipeline from upcoming projects, as at the end of last year. About 33.2 million sq ft of that is expected to be completed within the next two years.

This new supply will enter a more subdued market, say market watchers.

Mr Ong Kah Seng, director of R’ST Research, said rents for multi-user factories will likely drop 7 per cent within the next 12 months, with older properties coming off worse.

He also said that warehouse rents could fall by up to 4 per cent within the year.

Recently announced regulations on developing state industrial land have put restrictions on how new projects can be sub-divided.

Analysts say this could lead to heightened interest in existing strata-titled industrial space.

But Mr Ong warned that speculation has become a concern in strata-titled industrial properties.

‘The risk for price correction can be high if the speculative investors cannot find new takers should… leasing fundamentals weaken in an economic slowdown.’

Source: The Straits Times © Singapore Press Holdings Ltd

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