Land and capital values, and rents in Singapore likely to soften to up to 3 per cent in the next 12 months.

Colliers International’s latest bi-annual research findings on the industrial real estate markets in Asia Pacific concluded that they had softened for the period between October 2011 and March 2012.

The survey tracked the performance – in terms of capital and land values, as well as rents – of the industrial property market in 13 cities across Asia Pacific. The three types of industrial properties tracked are single-user factory premises, single-user warehouse premises and multi-user high-specifications (high-specs) industrial premises.

During this period, the majority of the submarkets surveyed reported either stability or a slower growth rate in land, capital and rental values.

This is against the backdrop of slower economic growth in Asia Pacific in 4Q 2011, which fortunately showed signs of improvement in 1Q 2012. The slower economic growth in 4Q 2011 was weighed down by the persistent uncertainties surrounding the United States and the Euro zone economic situation, as well as the massive floods in Thailand that disrupted manufacturing production lines.

Land and capital values

44 out of 55 single-user industrial submarkets surveyed saw land values rise or hold steady from October 2011 to March 2012, while the remaining 11 submarkets experienced declines. The overall increase in land values during the current review period averaged 2.5 per cent, compared to the average improvement of 4.8 per cent in the previous six months.

The Karawang and Bekasi areas in Indonesia took the lead in land values, where they surged by 38.6 per cent and 24.9 per cent, respectively, during the review period – a moderation from the 45 per cent recorded in the preceding six-month period. The strong price performance could be attributed to the country’s sustained economic growth and low labour costs, which continued to appeal to manufacturers.

On the other end of the scale, industrial land prices in Greater Tokyo fell for the seventh consecutive review period by an average of 0.6 per cent over the six months ending March 2012. This is at a slower pace – amid signs of an improving economy – compared to the average decline of 0.8 per cent in the previous review period.

Similarly, underpinned by healthy sales, capital values in 52 out of 58 submarkets surveyed also held steady or experienced upside during the six-month review period. This is relatively unchanged compared to the preceding review period, during which 51 out of 58 submarkets recorded growth or maintained their capital values. Nonetheless, the average growth in capital values had slowed from 3.6 per cent in the previous review period to 1.8 per cent from October 2011 to March 2012.

Notably, Shanghai enjoyed an acceleration in average capital growth of close to 12 per cent, compared to just 1.4 per cent in the preceding six months.

In Singapore, supported by the robust industrial investment and land sales activities, land and capital values continued to rise during the review period, albeit at a slower pace between 5.1 per cent and 13.5 per cent. This is down from 10 to 16 per cent in the previous review period.

Ms Chia Siew Chuin (谢岫君), Director of Research & Advisory of Colliers International, says, “The robust industrial investment and land sales activities are mainly driven by institutional investors, especially REITs, as well as end users who were looking to secure their own landed premises.

Significant REIT purchases during the six months included Cambridge Industrial Trust’s purchase of a factory located at 16 Tai Seng Street for S$59.25 million and a warehouse at 3C Toh Guan Road East for S$35.5 million. Cache Logistics Trust bought Pan Asia Logistics Centre at 21 Changi North Way for S$35.18 million.”


Rents of single-user industrial premises in the region had strengthened by an average of 1.8 per cent during the current review period, albeit at a slower pace compared to the 2.7 per cent gain in the previous six months.

Compared to only 1 of 54 submarkets in the preceding six-month period which reported rental decline, the current review period saw an increase in the number of single-user industrial submarkets experiencing a similar situation – with 8 of 53 submarkets surveyed reporting a rental slide. This was mainly due to weaker rents reported in five submarkets in New Zealand, where a slowdown in industrial leasing activity in Auckland and increased insurance costs arising from the Christchurch earthquakes had caused net rents to fall.

In Singapore, the government introduced a slew of measures1 during the review period, to weed out unauthorised users and ensure industrial space caters to the needs of genuine industrialists. This is an effort to achieve market stability by preventing runaway rents and prices of industrial space due to competition with unauthorised users.

Ms Chia adds, “Performance of the Singapore leasing market is lacklustre due to industrialists adopting a cautious stand in their business expansion plan. This is on the back of further moderation of Singapore’s economic growth to 2.6 per cent year-on-year (YoY) in the current six-month review period, from 3.6 per cent YoY in the preceding six-month review period.

Coupled with oncoming supply pressures, the gross monthly rents for factories in the central region inched up a mere 1.3 per cent to average at S$1.52 per sq ft by the end of March 2012, while the average gross monthly rents for warehouse space in the eastern part of the island stayed flat at S$1.44 per sq ft.”

Additionally, the high-specs industrial sector also suffered from easing spill-over demand from the office sector in line with its falling rents and rising stock of suburban office space.

Ms Chia continues, “With an ample supply of high-specs space in the pipeline, the rents for such industrial facility softened to S$3.50 per sq ft per month. Nonetheless, in the prime central locality, some high-specs industrial space could still command a strong rent of S$3.80-$4 per sq ft, while business parks could achieve S$4.50-S$5 per sq ft.”


Going forward, amid signs of an uplift in economic prospects, which should result in healthy demand and reduced vacancy, the majority of the submarkets surveyed are expected to experience stability or growth in values and rents by an average of some 2-3 per cent over the next 12 months.

Singapore’s economic growth will still be weighed down by risks in the external environment – including the persistent Euro zone debt crisis, the sluggish recovery in the US and the weak growth momentum in Asia – exposing companies in the manufacturing, as well as the transport and storage sector to strong headwind. Noentheless, these firms are expected to maintain their presence in The Republic to leverage Singapore’s Global-Asia position to tap into growth opportunities in Asia and the world.

Ms Chia concludes, “Singapore’s sound economic fundamentals should help the country and the industrial market ride through all the current uncertainties. Hence, although we expect Singapore’s industrial land, capital values and rents to soften in the next 12 months, the fall will be capped at three per cent.

Similarly, demand for high-specs industrial space is still supported by expansion in research and development functions, as well as the setting up of new high-value information and communication technology, bio-medical and digital media outfits. Hence, the dip in overall high-specs industrial rents is forecast to also be limited to three per cent for the whole of 2012.”