Tenants Who Require Space of 100,000 Sq Ft and Above May Face Challenges Finding Available Options

According to Colliers International, Singapore’s industrial property market will continue to have a mixed outlook for this year.  Industrialists are expected to remain cost sensitive and may take longer to evaluate their business space needs – on the back of the fragile global economic outlook that would continue to weigh on the Republic’s manufacturing sector, as well as lingering risks, such as repercussions from plunging oil prices, among others.

Leasing Market

Looking ahead into the next 11 months, rents for multi-tenanted conventional industrial space may ease further due to mounting supply pressures. 

Ms Brenda Ong (王俐频), Executive Director of Industrial Services | Project & Leasing at Colliers International, says, “Rents for properties with higher building specifications, such as those located within the business parks, as well as independent high-specs buildings, could see some upside potential due to a tightening in supply. Business park and high-specs space are also expected to benefit from the increase in office rents, which will drive tenants who also qualify for industrial space to look to more affordable alternatives.” 

Tenants with large space requirements of 100,000 sq ft and above, and who need the space immediately, may face challenges in finding available options.

Ms Ong comments, “In addition to the limited stock of entire developments for lease that also meet businesses’ operational and technical requirements, there are now fewer options available in the market, after JTC Corporation (JTC) revised its sub-letting policy in October 2014 that requires end-user lessees to occupy minimally 70 per cent of their building, as opposed to the previous 50 per cent; thereby, leaving less space for sub-let.”

In 4Q 2014, the average monthly gross rents of ground- and upper-floor prime conventional factory space stood at S$2.53 per sq ft and S$2.07 per sq ft, respectively.

For the whole of 2014, the average monthly gross rents for prime conventional ground-floor factory space gained 1.2 per cent year-on-year (YoY), while those for upper floor space dipped by 4.6 per cent in 2014, after staying flat in 2013.

Meanwhile, the average monthly gross rents of ground- and upper-floor prime conventional warehouse premises stood at S$2.49 per sq ft and S$1.96 per sq ft, respectively, by end 2014.  This represents an overall corresponding YoY decline of 4.2 per cent and 7.5 per cent in 2014, which are steeper than the specific 0.4 per cent and 0.9 per cent dip in rents recorded in 2013.

In contrast, the average rents of high-specification (high-specs) industrial premises bucked the downtrend and inched upwards by end-December 2014, mainly on the back of limited supply.

The average monthly gross rents of business park space was S$4.11 per sq ft in 4Q 2014.  While this brought the whole year gain to 1.5 per cent, the rate of growth has slowed down from the 3.6 per cent increase recorded in 2013.

The average monthly gross rents of ground- and upper-floor independent high-specs  industrial premises stood at S$3.20 per sq ft and S$2.97 per sq ft, respectively, in 4Q 2014.  This represents a YoY dip of 0.3 per cent for ground-floor space and a marginal YoY gain of 0.7 per cent for upper-floor space.  The figures are an indication of softening rents from 2013 for high-specs space, of which ground- and upper-floor premises recorded annual rental gains of 1.6 per cent and 1 per cent, respectively. 

Ms Ong says, “The change in the guidelines for supporting uses in industrial developments effective November 2014 has minimal impact on the industrial market.  Activity level in the industrial leasing segment had remained healthy in 4Q 2014, comprising lease renewal and space commitment by firms for expansion.  Additionally, some sub-tenants of industrial facilities on JTC Corporation’s (JTC) land had started to seek alternative premises, after JTC’s revision of the sub-letting rules from October 2014.

Nonetheless, on the back of supply pressures and stiffer competition for qualifying tenants, landlords of multi-tenanted conventional industrial buildings generally lowered their rental expectations in 4Q 2014.  Occupiers remained cost sensitive, amid a patchy manufacturing sector performance and lingering global economic risks.”

Sales Market

Transaction activity in the strata-titled industrial property sales segment for this year is likely to remain subdued at below the 2,000-mark level, unless the gap in price expectations between buyers and sellers is bridged. 

Nonetheless, demand for specialised and niche developments such as food factories, which are limited in supply, is expected to remain healthy.

Looking ahead, the anticipated muted state of the strata-titled industrial sales segment, coupled with the continued effects of the TDSR requirement, is expected to exert downward pressure on overall industrial property prices.

In 2014, the total number of caveats lodged for strata-titled industrial properties was at a five-year low of possibly below the 1,500 mark in 2014.  This was a continued decline from the 2,438 caveats recorded in 2013, which was lower than the peak of 4,426 in 2012.

The persistent weakness in strata-titled industrial property transactions continued to exert downward pressure on industrial property prices in end-2014.  Nonetheless, properties sitting on land with longer tenure such as freehold and 999-year leasehold tend to hold up better.

Mr Tan Boon Leong (陈文龙), Executive Director of Industrial Services | Project & Sales at Colliers International, says, “Properties with longer tenures are more resilient due to its limited supply, especially after the Government halved the maximum tenure of industrial sites sold under its land sales programme from 60 to 30 years. 

Moreover, the Government’s ramp up of its industrial land sales programme in recent years has resulted in stiffer competition among 30-year leasehold industrial properties, especially after demand has slowed down.”

Freehold and 999-year leasehold properties registered the smallest YoY price fall of 1.7 per cent in end-2014 and those with 60-year leasehold tenure recorded a 5.4 per cent YoY decline. Meanwhile, 30-year leasehold multi-user industrial properties experienced the steepest YoY price drop of 12.7 per cent.

By end-December 2014, ground- and upper-level prime freehold conventional factory spaces were commanding average capital values of S$863 per sq ft and S$736 per sq ft, respectively.  Meanwhile, ground- and upper-floor warehouses were estimated to be worth an average of S$663 per sq ft and S$587 per sq ft, respectively.

Ms Chia Siew Chuin (谢岫君), Director of Research & Advisory at Colliers International, concludes, “Overall industrial property prices could ease by up to 3 per cent in 2015.  However, prices of industrial properties with longer land tenure – those with freehold/999-year leasehold and 60-year leasehold tenures – which are limited in supply, are generally expected to hold up better than those of shorter 30-year leasehold properties in 2015.”