Industrialists’ Real Estate Decisions Remain Largely Guided by Cost

International property consultant, Colliers International’s latest sectoral report revealed that Singapore’s industrial property market witnessed a stable stream of leasing activities but a more subdued activity level for sales in the third quarter of this year.

Leasing Market

In 3Q 2014, there was no significant change in the leasing activity level from the preceding quarter, with leasing interest continuing to stem from firms in the growth industry – including the information and communication, clean technology, as well as oil and gas sectors. 

Ms Brenda Ong (王俐频), Executive Director of Industrial Services | Project & Leasing, says, “Cost remains a major factor influencing industrialists’ real estate decisions; of which they look to contain their operating cost in the longer term.

Committed deals during the quarter comprise mainly renewals and relocation take-up.  Additionally, we see some new demand from firms, such as self-storage companies, looking to grow their current footprint or set up operations in Singapore.” 

Given that tenants remain cost sensitive and on the back of increasing competition for qualifying tenants as more completed space comes onto the market1, industrial rents generally stayed subdued in 3Q 2014.

Ms Ong adds, “Rents of high-specifications premises generally still hold up better than the other types of industrial premises – underpinned by the gradual absorption of the existing available space and limited supply in the pipeline for the rest of 2014 and 2015.” 

The third quarter sees the average monthly gross rents of business park space maintain at the previous quarter of S$4.08 per sq ft. 

Likewise, rents of independent high-specification (high-specs) industrial premises registered little movement – with the ground-floor space easing by a negligible 0.3 per cent quarter-on-quarter (QoQ) to S$3.19 per sq ft, and upper-floor space remain unchanged at S$2.95 per sq ft.

In contrast, the prime conventional warehouse space segment saw rents slide for the fourth consecutive quarter in 3Q 2014.  This is due to increased competition from premises with newer and better specifications, such as ramp-up facilities.  Specifically, the average monthly gross rents of ground- and upper-floor space eased by another 0.8 per cent and 2 per cent QoQ to S$2.52 per sq ft and S$2 per sq ft, respectively, in 3Q 2014.

Over at the conventional factory segment, rents of upper-level space slipped 0.9 per cent QoQ to S$2.12 per sq ft during the quarter. However, the average monthly gross rents for ground-floor prime conventional factory space inched up 0.8 per cent QoQ to S$2.57 per sq ft.  The increase was attributed to a shortage of such ground-level space which are sought after by industrialists.

Sales Market

The strata-titled sales market continued to experience a low activity level.  There were only 194 caveats lodged for strata-titled transactions in 3Q 2014, which is 39.2 per cent below the 319 caveats registered in 2Q 2014. 

Mr Tan Boon Leong (陈文龙), Executive Director of Industrial Services | Project & Sales, says, “The relatively-quiet strata-titled industrial sales market was due to the current price standoff between buyers and sellers.  Although sellers have shown greater willingness to negotiate during the quarter, prospective buyers remain cautious and selective since there are ample choices in the market.  In fact, some buyers have disclosed that they are waiting for a price correction to happen.”

“However, we noticed that projects with strong attributes, such as higher building specifications and convenient location, as well as developments catering to niche industries are still in demand. For example, the 41-unit WestView Food Factory in Tuas saw strong sales performance and is reportedly sold out within a few months,” adds Mr Tan.

He continues, “The appeal of industrial properties to investors has also dropped due to the lingering effects of Total Debt Servicing Ratio requirement, as well as the imposition of Sellers’ Stamp Duty.   Furthermore, fewer investors were acquiring in the strata-titled sales market, as many of the new industrial projects that were released for sale during the year either have 30-year tenures which investors typically prefer longer ones or were zoned for ‘Business 2’2 use, intended for heavier industrial production which targeted at mainly end-users and industrialists.” 

In view of the weak buying sentiment and the availability of unsold units in earlier projects, developers appeared to be in no hurry to release more strata-titled industrial projects for sale in 3Q 2014.  The only major project that was released during the quarter was the 30-year leasehold e9 Premium located in Woodlands. 

Consequently, the average capital values of prime conventional industrial space remained unchanged at the preceding quarter’s levels. 


Looking forward, sentiments in the industrial property market is expected to remain mixed in 4Q 2014, considering the presence of persistent downside risks – some of which include the uncertainties surrounding the global economic recovery and the traditional year-end holiday lull.

The revised sub-letting policy3 by JTC Corporation (JTC) that kicked in on 1 October 2014 is expected to slow down en bloc sale transactions of properties built on JTC land.  The impact is, however, unlikely to surface in the immediate term, as existing tenants and lessees have been given a three-year period until the end of 2017 to adjust to the revised ruling.

This latest policy change, along with the earlier amendments such as the upfront land premium requirement and revised assignment of lease policy, potentially increases the difficulty for industrialists in meeting all the requirements, as well as executing Sale and Leaseback (S&L) transactions.

Ms Chia Siew Chuin (谢岫君), Director of Research & Advisory at Colliers International, says, “As it is anticipated to be more difficult in finding replacement anchor sub-tenants when secondary industrial space becomes available from expiring S&L leases, current anchor sub-tenants leasing space from third-party facility providers will enjoy stronger bargaining power when their leases are up for renewal.  This could hurt rents and yields achievable by the third-party facility providers in the medium term.”

By and large, on the leasing front, tenants are expected to remain cost sensitive in the current climate of high business operating costs. 

Ms Chia continues, “Similar to 3Q 2014, rents for business parks and independent high-specs buildings are expected to hold steady in 4Q 2014, mainly due to a tightening in supply.  The reverse is expected to be true for the prime conventional industrial segment, where rents could ease further in 4Q 2014 – albeit marginally at 0.5 per cent – on the back of supply pressures.”

In the strata-titled industrial sales segment, sales are expected to remain slow in 4Q 2014, with a likelihood that the number of caveats lodged for the entire year to be below the 2,000-level.  The last time fewer-than-2,000 caveats were lodged for strata-titled industrial properties were in 2009 at about 1,500 records.

Ms Chia concludes, “The average capital values of prime freehold conventional warehouse and factory space are expected to remain at their current levels in 4Q 2014, given there are no compelling reasons for any price upside since buyers will remain price conscious and selective.”


  1. Some 11.7 million sq ft of industrial space were already completed in 1H 2014, which is higher than the 9.3 million sq ft of space in 2H 2013 and 6.3 million sq ft in 1H 2013.
  2. Business 2 (B2): These are areas used or intended to be used for clean industry, light industry, general industry, warehousing, public utilities and telecommunication uses and other public installations. Special industries, such as the manufacture of industrial machinery, shipbuilding and repairing, may be allowed in selected areas subject to evaluation by the competent authority.
  3. To ensure that lessees who have been allocated land for their own productive use will continue to occupy the majority of the space, industrialists who build their properties on JTC-leased land will have to take up at least 70 per cent of the total building gross floor area (GFA), up from 50 per cent with effect from 1 October 2014. This means they can only sublet up to 30 per cent of their building’s GFA.  For end-users and third-party facility providers, they can continue to sublet up to 50 per cent of their total GFA to non-anchor sub-tenants within five years of obtaining the temporary occupancy permits for their buildings; after which, the 30-per-cent restriction will kick in. A new minimum occupation period of three years for subsequent anchor sub-tenants will also be imposed. But tenants who rent industrial space directly from JTC will be barred from subletting any of that space under the revised ruling to ensure that they remain as the main users of their space.