Rents of Prime Conventional Industrial Space May Have Reached Its Peak

International property consultant, Colliers International’s latest quarterly research report on the industrial property sector revealed that the industrial property market in Singapore has entered into a state of stability in 2Q 2013 – reflected by the stable rents and marginal growth in capital values. 

Leasing market

As of June 2013, industrial rents across all the industrial premises segments remained unchanged on a quarter-on-quarter basis.  

The average monthly gross rents of prime conventional factory space stayed at S$2.49 per sq ft for ground-floor space and at S$2.18 per sq ft for upper-floor space in 2Q 2013.  This is 33.2 per cent and 38.9 per cent higher than the last troughs in 3Q 2009, respectively.  

Likewise, the average monthly gross rents of ground- and upper-floor warehouse premises in 2Q 2013 remained at the preceding quarter’s level of S$2.62 per sq ft and S$2.15 per sq ft, respectively. This is a recovery of 38.6 per cent and 43.3 per cent from the respective troughs in 3Q 2009 and 2Q 2009.  

In the high-specifications (high-specs) industrial space segment, rents of ground- and upper-floor space in 2Q 2013 were also unchanged at the level recorded in 1Q 2013 – S$3.30 per sq ft and S$2.98 per sq ft, respectively.  

The average monthly gross rents of business park space also held steady at S$4.04 per sq ft in 2Q 2013, after the increase of 3.3 per cent in 1Q 2013.  

Mr Tan Boon Leong (陈文龙), Executive Director of Industrial Services | Project & Sales at Colliers International, says, “The stability in the rental movement across all segments in 2Q 2013 was a reflection of landlords generally holding onto their rental expectations and a relatively tepid leasing demand.  

Specifically, the stable rental data indicated that rents of prime conventional industrial space may have reached its peak, having been on an upward trend since 2H 2009. 

Similar to 1Q 2013, leasing activities in 2Q 2013 were driven by renewals, as well as by firms relocating to alternative premises to manage their overall real estate costs.  To some extent, demand was also supported by displaced tenants seeking new business space, following the sale of their existing premises.” 

Mr Tan continues, “However, the overall take-up was slow.  Tenants remained cost conscious amid the lingering economic uncertainties; hence, taking a longer time to evaluate and decide on their real estate needs.  Additionally, in some cases, the leasing process was also prolonged by more detailed checks conducted to qualify users and to ensure compliance with the Government’s guidelines.” 

Sales market 

The average capital values of prime freehold ground- and upper-floor factory premises resumed their upward trend in 2Q 2013, after halting momentarily in 1Q 2013 – gaining 0.7 per cent and 1.5 per cent to S$718 per sq ft and S$658 sq ft, respectively. 

Meanwhile, the average capital values of prime freehold conventional warehouse space – where supply remained scarce – rose for the fifth consecutive quarter to S$656 per sq ft for ground-floor space and S$581 per sq ft for upper-floor space.  

The increases were at a slightly faster pace at 1.1 per cent for ground-floor space and 0.9 per cent for upper-floor space, compared to 0.8 per cent and 0.7 per cent, respectively, in 1Q 2013. 

Mr Tan comments, “Speculative activities have waned, following the Government’s imposition of a Sellers’ Stamp Duty (SSD) on all industrial properties sold within three years of purchase from 12 January 2013.

Nonetheless, we still observe healthy demand from genuine end users and long-term investors for freehold industrial properties that are well located and have quality design and specifications – which lent support to the marginal growth in the capital values during the quarter."

Following the Government’s recent clamp-down on illegal industrial space users, buyers exercised more caution both in evaluating their purchase decisions and in seeking for tenants to ensure they are qualified industrial space users.

Consequently, overall transaction activity in the strata-titled industrial property market remained subdued in 2Q 2013, with only two new strata-titled industrial project launches in 2Q 2013.  They were the 83-unit Gemini@Sims that is located at Lorong 17 Geylang and The Westcom which comprises 72 factory units and 72 warehouse units.

The fewer number of new launches during the quarter indicated that most developers decided to focus on the sale of their existing projects, amid softening market sentiments.


Ms Chia Siew Chuin (谢岫君), Director of Research & Advisory at Colliers International, says, “Going forward, industrial rents are projected to stay relatively stable for the rest of 2013.  Although landlords of newer and upgraded buildings could seek higher rents, any increase in rents will still be limited by tenants’ cost-conscious stance and supply pressures. 

Consequently, for the rest of 2013, industrial rents are forecast to remain flat for prime conventional industrial premises, with marginal upside seen for high-specs and business park space.” 

The Government’s industrial land sales programme for 2H 2013, which continues to release for sale industrial sites with a maximum tenure of 30 years, could provide some level of support to demand for freehold or leasehold properties with longer-than-30-year land tenure. 

Ms Chia comments, “The average capital values of prime freehold warehouse and factory space are forecast to increase at a moderate pace of about 0.5 per cent per quarter.  This will bring the full year price forecast to up to 3 per cent – significantly slower than the growth range of 10-22 per cent in 2012 for these two types of conventional industrial space.” 

Meanwhile, transaction activity in the strata-titled industrial property market in 2H 2013 is likely to stay subdued – due to the effects of the SSD, the fragile economic outlook, as well as the potential interest rate increase as a result of the cut-back in monetary stimulus by the US Federal Reserve. 

End users and investors with a longer investment horizon are likely to remain as the two main groups of buyers for such properties; nonetheless, they are expected to be price sensitive and exercise greater prudence when evaluating their purchase decisions.