2011-07-06

Singapore

After a temporary lull in 1Q 2011 due to the Lunar New Year’s festive season, Singapore’s industrial property market showed encouraging signs of picking up in 2Q 2011 – with both the leasing and sale markets experiencing a flurry of activities.  

Leasing market
The latest quarterly industrial property market research conducted by Colliers International revealed that the average monthly gross rents for prime factory and warehouse spaces surged by 6-7 per cent quarter-on-quarter (QoQ) in 2Q 2011, the fastest quarterly growth in three years.

By 2Q 2011, prime ground floor factory space was commanding average monthly gross rents of S$2.25 per sq ft.  This is some 8.9 per cent below the peak in 3Q 2008, during which rents reached S$2.47 per sq ft.

Similarly, prime ground floor warehouse space commanded average monthly gross rents of S$2.34 per sq ft, which is 4.5 per cent below its 4Q 2008 peak of S$2.45 per sq ft. 

Meanwhile, the average monthly gross rents of prime upper factory and warehouse spaces in 2Q 2011 were S$1.96 per sq ft and S$1.90 per sq ft, respectively – exceeding 2008’s 4Q peak of S$1.81 per sq ft and S$1.76 per sq ft correspondingly by 8.3 per cent and 8 per cent.

Mr Tan Boon Leong (陈文龙), Director of Industrial Services at Colliers International, says, “Following the tightening supply of industrial stock, landlords have raised their asking rents to captalise on the growing demand.  Occupier demand for industrial space continued to be in the expansionary mode in 2Q 2011, on the back of a healthy economy.  Additionally, the impending re-development plans of old industrial buildings, such as those in JTC’s Ayer Rajah Industrial Estate and The Comtech along Alexandra Terrace, has prompted businesses to search for new space for their operations.

Furthermore, spill-over occupier demand from qualifying users moving from office premises due to high office rents, remained a strong driving force in raising end-users’ demand in 2Q 2011.”

On the back of a moderation in the pace of office rental growth, as well as a healthy pipeline of new high-specs space, rents for high-specs space continued to climb during the quarter, albeit at a moderated pace of 2.4 per cent QoQ in 2Q 2011, compared to 4.4 per cent QoQ in 1Q 2011.

Consequently, average monthly gross rents for high-specs space stood at S$3.41 per sq ft in 2Q 2011, which is some 18.4 per cent below the S$4.18 per sq ft achieved at the peak in 1Q 2008.

Sales market
The sales market was particularly robust in 2Q 2011, as investors and occupiers were treated to a strong line-up of project launches – including the 454-unit North Spring Bizhub in Yishun, the 728-unit Oxley Bixhub in Ubi and the 115-unit One Pemimpin at Pemimpin Drive, among others.

Mr Tan comments, “Each of these strata industrial project launches in 2Q 2011 has its unique appeal.  For instance, North Spring Bizhub is by far the second ramp-up industrial development catering to 40-foot containers that is available for strata sale.  Oxley Bizhub comprises recreational facilities which are not commonly found in industrial properties, while One Pemimpin holds a 999-year leasehold tenure, as opposed to most industrial projects that have a much shorter tenure of either 30 or 60 years.”

“Consequently, not only do these strata project launches appeal to traditional industrial property investors, they also drew the interest of non-traditional industrial property investors, who typically delve in residential properties.

Specifically for the latter group, new industrial projects, which typically offer higher gross rental yields ranging between 5 per cent and 7 per cent, but at a lower capital outlay compared to residential projects, became an attractive investment alternative,” adds Mr Tan. 

The sales market was also given an additional boost by the rising rental levels, which resulted in a growing willingness of occupiers to secure their own premises.  Hence, although the launch prices at some of the new industrial projects were noticeably higher than those achieved for existing neighbouring developments with similar tenures, sales were brisk.

For instance, close to 50 per cent of Oxley Bizhub was sold at an average price of S$677 per sq ft, while sales at One Pemimpin were also buoyant, with more than half of the units sold despite its high price tag of some S$800 per sq ft on average.

With high benchmark prices set by new launches, owners of units in existing developments have also raised their asking price to ride on the up-cycle, with buyers continuing to bite. 

As a result, capital values of industrial properties turned in another quarter of growth, despite having already surpassed the 3Q 2008’s peak levels in the preceding quarter.

Average capital values for prime freehold factories on the ground floor climbed 3.2 per cent QoQ, from S$556 per sq ft in 1Q 2011 to S$574 per sq ft in 2Q 2011, while those on the upper floors rose 5.3 per cent QoQ, from S$475 per sq ft in 1Q 2011 to S$500 per sq ft in 2Q 2011.

Similarly, the average capital values for prime freehold warehouses on the ground floor and upper floors rose by 7.3 per cent and 7.8 per cent QoQ, to end the quarter at S$571 per sq ft and S$482 per sq ft, respectively. 

Outlook
Ms Chia Siew Chuin (谢岫君), Director of Research & Advisory of Colliers International, says, “Looking forward, the industrial property market remains positive in the short to medium term, with economic activities staying buoyant and manufacturing growth projected to be boosted by new plant operations in the biomedical, clean energy and chemical clusters.

Nonetheless, there are still downside risks.  Similar to all industries, concerns of the macro environment usually affect business expansion decisions, which in turn, will impact the demand for industrial space. 

Inflationary pressures, a tightening labour market, as well as weak US manufacturing data, the tightening of Chinese monetary policy and the re-emergence of the eurozone debt crisis will continue to pose challenges to the market.   Uncertainty over the electronics supply chain disruptions due to the recent natural disasters could continue to temper the growth in Singapore’s electronic sector, leading to a possible further slowdown in the growth of manufacturing activities.”

“Hence, after chalking up substantial gains of up to 12.6 per cent in 1H 2011, rents and capital values of industrial properties are expected to grow more moderately, in the range of 10 per cent in 2H 2011,” concludes Ms Chia.