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Singapore’s industrial property market continues to show mixed results. But for how long?
By Nikki De Guzman
For Singapore’s industrial property market, 2014 was a year of weak sales and healthy leasing activity. The year saw four quarters of contrasting performances between the leasing and sales market.
Given this, market experts have forecasted a mixed year as sales continue to slow down while leasing activities for industrial properties remain steady. However, with the looming shortage of business park space, a more competitive leasing market and fragile global economic outlook, can we still expect the market to show contrasting results? Has the market improved in recent months, or is it all downhill from here?
In this issue, we’ll find out if the leasing market was able to hold firm and whether sales have improved in recent months, and what to expect for the rest of the year.
A year of contrasts
Last year was a slow year for the republic’s industrial property sales market—it registered a slowdown in the first few months that persisted throughout the year.
A Savills report published in January said overall sales of strata factories and warehouses in 2014 declined 40.2 percent compared to 3,379 caveats lodged in the previous year. This means 2014 registered the third consecutive year of decline in sales transactions for strata factories and warehouse properties, according to the consultancy.
On the other hand, reports revealed that the leasing segment remained healthy in 2014. Last year’s total number of leasing transactions surpassed the 7,635 deals recorded in 2013. The increase was attributed to more options being available for companies seeking premises following the completion of new strata industrial properties like Woodlands Horizon and Premier @ Kaki Bukit.
This was echoed by Colliers International which noted that apart from rental renewals, leasing activities were pumped up by firms expanding their businesses or setting up new facilities. It added that leasing interest remained healthy especially from firms in growth industries such as clean technology and biomedical.
Meanwhile, the business park sector also reported a healthy 2014. The total number of business park deals increased by least 38 percent last year compared to the total number recorded in 2013.
Given this, experts said they expect 2015 to remain calm in general, on the back of current market conditions and other factors affecting the sector.
The lingering effects
The Singapore industrial property sales segment remained largely unchanged in the early part of the year with a stalemate in strata-titled industrial sales that persisted from the previous year through the first quarter and continued to languish into the second quarter.
The sluggish sales were reflected in the number of caveats lodged on the Urban Redevelopment Authority’s Real Estate Information System (REALIS). In a report by Colliers International in July, it said the number of caveats lodged (as of 1 July) fell from 220 in the first quarter to just 206 in Q2. The consultancy expects the total number of caveats lodged for the first half of the year to remain below the 562 caveats and 640 caveats recorded in the second half of 2014 and H1 2014 respectively.
The decline was attributed to several factors including the lull period during the traditional festivities in the first couple of months, as well as the lingering effect of the Total Debt Servicing Ratio (TDSR) requirement. Colliers added that most sellers continued to hold on to price expectations while buyers anticipating price corrections were in no hurry to lock in a purchase, resulting in a price gap between the two.
Over on the leasing front, however, Colliers said the total number of leasing deals in the first half of the year increased due to sustained interest from growth industries. The market was also backed by some industrialists sourcing for alternative premises as a result of being affected by the government’s industrial estate development plan.
In terms of prices, research by Colliers revealed that average monthly gross rents for ground-level prime conventional warehouse space remained steady in the first half of the year at $2.49 psf, while those for ground-level prime conventional factory space eased slightly in Q2 to $2.52 psf after staying flat in Q1 at $2.53 per sq ft. (refer to Table 1)
As for business parks, Savills said in a report released in May this year that demand remains steady. According to the consultancy, as the republic focuses its economic restructuring efforts on the expansion of technology and innovation industries, demand for business park spaces will remain healthy even after the addition of 2.17 million sq ft of upcoming supply to be completed this year, and the 2.11 million sq ft in 2016. Another property consultancy, DTZ, said demand for business parks continues to be supported by office tenants seeking more cost-effective space.
The times ahead
Looking ahead at the rest of the year, industry experts believe the market is likely to remain in the same state as to how it was in the first half of the year.
Chia Siew Chuin, Director of Research & Advisory at Colliers International, said that sentiment in the industrial market is expected to stay tentative as “the prevailing uncertainties surrounding the global economic outlook and the possible increase in interest rates are anticipated to linger”.
Transaction volumes are expected to remain subdued towards the end of the year as long as buyers and sellers continue with the wait-and-see approach. Commenting, Colliers noted that with poor buying interest, coupled with softening rents and possible interest rate hikes, industrialists with weaker holding power may be inclined to lower price expectations, which may put downward pressure on industrial property prices in the remaining months.
As for leasing, with most industrialists expected to stay cost-sensitive and exercise caution on their property requirements—given the availability of ample choices on the purchase and rental fronts, rents of strata-titled industrial properties are expected to ease further towards the end of the year. In a recent report, DTZ’s Associate Director of Research, said: “Landlords are [also] inclined to set rents competitively and provide more flexibility to retain tenants,” on the back of the manufacturing sector that continues to weaken.
Meanwhile, leasing in the business park segment is expected to remain healthy with continued demand from tech firms and pharmaceutical companies.
In July, it was reported on CommercialGuru that business park vacancy rates are expected to be tighter due to the lack of supply beyond 2016. Citing a CBRE report, out of the 2.93 million sq ft of business park space in the pipeline for Q3 2015 to end-2016, nearly 60 percent have already been pre-committed ahead of their completion.
As a result, CBRE estimates that there will be no new business park space available after next year, unless the government releases more land for this type of development or some existing projects are redeveloped.
“Occupiers with requirements for quality business park space have very limited options at present. There is clear appetite for business park space given the consistently high pre-commitment levels of business park projects,” said Michael Tay, CBRE’s Executive Director for Office Services.
With this, market experts believe rents for business park spaces will register a marginal increase of up to 1 percent for at least the months towards the end of the year.
508 Chai Chee Lane
508 Chai Chee Lane
508 Chai Chee Lane is a seven-storey light industrial building with two basement levels and a total gross floor area of 113,689 sq ft.
Zoned Business 1, the building sits on an 113,690 sq ft site with a plot ratio of 2.5. The site has a tenure of 30 plus 29 years with effect from April 2001. With a large floor plate, the building can cater to a wide range of industrial activities such as cold room, research and development (R&D), high-tech industrial and warehousing.
The development features three passenger lifts, one fireman lift and a cargo lift that comes with a capacity of 5,000 kg. It also offers 135 car park lots and eight lorry lots that include a loading bay lot suitable for a 40-footer lorry.
Easily accessible via the Pan-Island and Kallang-Paya Lebar expressways, the property is also served by the Bedok and Kembangan MRT stations.
508 Chai Chee Lane is a development by Sabana Real Estate Investment Management.
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