2012-07-10

Rents of prime conventional warehouse space rose to a new peak in the quarter.

The latest quarterly industrial property market research conducted by Colliers International concluded that the Singapore industrial property market remained healthy in 2Q 2012. The healthy performance was supported by a general uplift in market sentiment, although there were renewed fears over the Euro zone debt crisis towards the end of the second quarter.

Leasing market
Compared to the typically-slower first quarter, the industrial leasing market witnessed more activities in 2Q 2012, which were mainly led by lease renewals, and to a smaller extent, firms expanding or relocating their business operations.

Rent growth was, nonetheless, kept in check by tenants who showed resistance towards steeper rent increases.

In 2Q 2012, prime ground floor conventional factory space commanded an average monthly gross rent of S$2.40 per sq ft – a marginal increase of 0.4 per cent quarter-on-quarter (QoQ). This is just 2.8 per cent below the peak of S$2.47 per sq ft recorded in 3Q 2008.

Prime upper floor conventional factory space commanded S$2.10 per sq ft – an increase of 1 per cent QoQ, and a 16-per cent jump from S$1.81 per sq ft recorded during the last peak in 4Q 2008.

Meanwhile, prime conventional warehouse rents in 2Q 2012 rose to a new peak for ground and upper floor space – exceeding their last peak in Year 2008 by 2 per cent and 17 per cent, respectively.

The average monthly gross rents of prime ground floor warehouse space rose by 1.2 per cent QoQ to S$2.50 per sq ft, while the upper floor warehouse space increased by 1 per cent QoQ to S$2.06 per sq ft in 2Q 2012.

According to the Survey of Business Expectations of the Manufacturing Sector for 2Q 2012 by the Economic Development Board, business sentiment picked up across all manufacturing sectors. This is despite real concerns on the global economic uncertainties relating to the Euro zone debt crisis, the strength of the United States economic recovery and high oil prices.

The positive business sentiment has been also reflected by the recovery of prime factory and warehouse rents which have sprung back to some 27 per cent to 36 per cent as of 1Q 2012, from their last trough in Year 2009.

In the high-specifications (high-specs) industrial market category, rents rose on the back of reduced vacancy during the quarter. Island-wide rents for industrial high-specs buildings gained 1.6 per cent QoQ to S$3.22 per sq ft in 2Q 2012.

Mr Tan Boon Leong (陈文龙), Executive Director of Industrial Services at Colliers International, says, “In general, industrial buildings with better specifications or ramp-up developments that cater to 20-foot containers can command higher rents than conventional warehouse developments. There is always a healthy demand for industrial properties that feature better facilities and design.

However, there are a limited number of good quality industrial buildings in prime locations, especially those within walking distance to MRT stations. These contributed to the upward trend in rents across the various categories of industrial premises.”

Business park space was the only category that saw its average monthly gross rents stay flat for the second consecutive quarter. Rents remained at S$3.90 per sq ft in 2Q 2012.

Mr Tan explains, “Rents for business park space this quarter have improved slightly from the 1.5 per cent fall recorded in 1Q 2012. The market has experienced increased competition for tenants, given the continued decline of office rents in 2Q 2012, which has narrowed the rental gap between business park space and sub-urban office premises. The intensity of the competition for tenants could be exacerbated with the ample supply of sub-urban office space in the pipeline.”

Sales market
Unlike 1Q 2012, during which the quarter saw a string of new project launches, there were only two new industrial projects launched in 2Q 2012. Both projects enjoyed good take-up rates, which demonstrate the sustained level of buying interest in industrial properties.

More than 70 per cent of the 72 units in M38@Jalan Pemimpim in the Bishan/Marymount locality were sold at more than S$800 per sq ft (inclusive of void area). Meanwhile, some 80 per cent of the 120 units released in the 360-unit Synergy@KB in the Kaki Bukit area were sold at prices starting from S$335 per sq ft.

However, it was observed that investors exercised more caution in evaluating their purchase decisions, in light of the recent efforts by the Urban Redevelopment Authority to clamp down on the unauthorised use of industrial space.

Mr Tan adds, “On the back of a low interest rate environment and healthy demand, the buoyant sales market can also be attributed to the good design specifications and facilities provided in some of these new industrial developments that are recently launched. A design which facilitates practical use of space will always appeal to genuine industrialists.

Additionally, industrial properties have the benefits of a relatively-lower price base, compared to other property types. Hence, although prices of industrial properties are on an upward trend, they are still considered very affordable in absolute price quantum.”

Encouraged by the price levels achieved for newly-launched projects, sellers of existing properties also seek higher prices. Consequently, the average capital values of prime freehold factory space rose in 2Q 2012 – and at a faster pace – for the ninth consecutive quarter.

Average capital values of ground and upper floor space of freehold conventional factory space in 2Q 2012 gained 5.1 per cent and 7.1 per cent to S$665 per sq ft and S$600 per sq ft, respectively. These values are correspondingly 21.4 per cent and 37.3 per cent beyond the recent peaks in 3Q 2008.

The prime ground and upper floor conventional warehouse space also saw the average capital values commanding an average price of S$608 per sq ft and S$533 per sq ft, respectively – a corresponding increase of 4.3 per cent and 5.3 per cent QoQ.

Outlook
In the next five months until December 2012, the growth in capital values is expected to continue to outpace the appreciation in rents.

Ms Chia Siew Chuin (谢岫君), Director of Research & Advisory at Colliers International, says, “The strata-titled industrial market will continue to be supported by the low interest rate and high liquidity environment, and the spillover demand from the residential market due to the recent cooling measures in the sector.

Additionally, the government’s continued release of shorter 22- and 30-year leasehold sites – through its industrial land sales programme for 2H 2012 to make industrial property more affordable to genuine industrialists – may lead to a short-term boost in demand for 60-year leasehold properties.”

Ms Chia continues, “Given the short-term boost in demand for properties with longer tenures, the market will possibly see a rise in the prices of such industrial properties in the short term, as the new policy signals to the market that the supply of longer tenure of industrial lands will no longer be available.”

Although investors are expected to remain cautious due to the lingering global economic uncertainties and heightened competition for legitimate tenants arising from recent governmental efforts to stem the illegal use of industrial space, sellers’ price expectations are expected to stay high – on the back of new benchmark prices attained at recently-launched projects.

Ms Chia concludes, “In light of the above, prices of prime industrial properties are forecast to increase by up to 9 per cent in 2H 2012 – a moderation from the price growth of up to about 17 per cent in 1H 2012.

On the leasing front, lease renewals are expected to dominate market activity in the next two quarters.

However, tenants’ resistance to any further rise in rents is expected to limit the rental growth rate for both prime conventional and high-specs/business park premises to up to 0.5 per cent in 2H 2012, compared to the growth of up to 2 per cent recorded in 1H 2012.”