22 February 2012

Rents and prices are projected to see single-digit decreases amid slowing external trade

Amid registered growth in 4Q 2011, industrial property rents and prices are expected to see a downtrend in 2012 in anticipation of deteriorating export growth, according to Colliers International's Industrial Market Research & Forecast Report 4Q 2011.

The average rent of factory, cargo lift access warehouse, ramp access warehouse and I-O buildings continued to record growth in 4Q 2011, rising 1.8% quarter-on-quarter (QoQ), 4.7% QoQ, 5.4% QoQ and 2.2% QoQ, respectively. 

"Despite weakening external trade performance, the strong local retail sales translate into demand for warehouses," said Simon Lo, Executive Director of Research & Advisory, Asia at Colliers International.  As some major corporations are seeking to outsource their logistics arm, a group of third-party logistics companies are searching quality warehouse premises in order to capture the growing demand.  Thus, major owners of quality warehouse facilities experienced high occupancy in their portfolios.”

Meanwhile, industrial property prices also registered increases in 4Q 2011, with growth ranging from 1.8% to 5.4% QoQ for factory, cargo lift access warehouse, ramp access warehouse and I-O buildings. 

Simon added that industrial property sales activity was restrained by banks’ mortgage lending policies. Seeing rising interest costs for acquiring industrial premises, prospective buyers have become cautious.  However, most vendors, especially long-term investors, remained firm on their asking prices in view of continued low interest costs for holding their industrial premises and stable rental income amid sustained occupational demand.  As a result, the number and total value of strata-titled transactions of industrial properties both dropped over 40% between September and November 2011.

According to the government statistics, industrial property yield was at about 3.8% between September and November 2011, which was the lowest level since early 1990s.  In anticipation of expanding risk premiums for acquiring industrial properties amid economic uncertainties in the coming quarters, industrial property yield is expected to see upward adjustment pressure.

Due to potential economic downturn and gloomy outlook in external trade performance in 2012, end-users of industrial premises are becoming more cost cautious.  Over the next twelve months, industrial property rents are projected to edge down 4%.  Meanwhile, as investment yield of industrial properties is expected to trend upwards amid increasing mortgage rates, industrial property prices are projected to drop 6% in the next twelve months.


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