Industrial property prices up in 3rd quarter

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Industrial property prices up in 3rd quarter

Pace of increase slows but 3.5% gains posted despite flat-lining of rents

Published on Oct 10, 2012

By Esther Teo Property Reporter


INDUSTRIAL property prices rose in the third quarter as investors looked to avoid earlier cooling measures in the residential market but the pace of increase has slowed, according to a report from consultancy DTZ.

Resale prices for upper-storey industrial space increased 3.5 per cent in the third quarter compared with the previous three months. That's a slowdown: Prices had risen 4.9 per cent in the second quarter over the first.

Values have surged 8.5 per cent in the first nine months of the year, however.

The gains come despite rents flat-lining in the wake of slowing manufacturing activity.

DTZ said buyers were more cautious in the July to September period, with prices already at high levels and the Government indicating that it could impose cooling measures.

It is also watching for increasing speculative activity in the industrial sector.

Only rents for high-tech industrial space rose in the three months to Sept 30 and that was by just 0.7 per cent. Rents for first-storey and upper-storey conventional industrial space remained stable.

Ms Angela Tan, DTZ's regional head of occupier services, said: "Most landlords maintained their asking rents as they continue to receive a steady stream of lease inquiries.

"Healthy demand emanated from corporate occupiers seeking expansion space, particularly those in the pharmaceutical, biomedical and engineering sectors."

A Knight Frank report noted that rents stayed flat in the MacPherson and Clementi-Bukit Batok clusters in the third quarter but rose for the Woodlands and the Kaki Bukit-Ubi clusters, as they are the "next emerging spot" for industrial property, it said.

"The growth in rentals in Woodlands and Kaki Bukit-Ubi clusters was mainly driven by the newer developments, while the Ang Mo Kio cluster commanded higher rents due to its centralised location and shortage of new supply in this locality," said Knight Frank research head Png Poh Soon.

"The older industrial properties located in Paya Lebar cluster experienced a rental drop of 1.7 per cent due to competition from the newer properties in Kaki Bukit-Ubi cluster."

About 21 million sq ft of private industrial space is expected to be completed from July this year to the end of next year, translating into an average annual supply of about 14 million sq ft.

This includes North Spring Bizhub, with about one million sq ft of space, 628,000 sq ft at One@Changi City and Infinite Studios, with about 181,000 sq ft. This is higher than the 10-year average annual take-up of 10 million sq ft, DTZ noted.

Ms Chua Chor Hoon, DTZ's head of Asia Pacific Research, said yields for industrial properties are likely to be squeezed further.

"The slowdown in the overall manufacturing sector and upcoming supply will put pressure on industrial rents, while ample liquidity will continue to nudge investors to the sector, barring any government measures to temper purchases," she added.

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Published October 10, 2012

Resale prices of industrial space on the rise

But analysts disagree on need for govt measures to cool speculation

By ong chor hao


[SINGAPORE] There are signs of speculation developing in areas of the industrial property sector, analysts say, but they are divided over whether there is overheating and if the government should step in.

A report from consultancy DTZ yesterday showed that resale prices for industrial space continued to rise in the third quarter, while industrial rents held firm.

The report showed that resale industrial prices for first-storey conventional industrial space rose 4 per cent in Q3, to $600 per square foot (psf), compared with the previous quarter. This was at the same rate as the previous quarter.

For upper-storey industrial space, prices grew 3.5 per cent to $445 psf from the previous quarter, slowing from 4.9 per cent growth in Q2.

Rents for first-storey conventional industrial space were at an average of $2.15 psf per month, while upper-storey rentals averaged $1.75 psf per month, the same levels as Q2. Hi-tech industrial rents edged up 0.07 per cent from the second quarter, to $3 psf per month.

Chua Chor Hoon, head of Asia Pacific Research at DTZ, said the lack of a seller's stamp duty for commercial properties could be a reason for the increase in speculation, as there is no penalty if buyers sold their units within a short period of time. "In addition, industrial properties generally have a lower overall quantum, so the barrier to entry is lower for investors hoping to flip the units for a quick buck."

Prices of industrial space should continue to rise for the rest of the year as investors seek alternatives to residential properties, while industrial rents will face downward pressure amid an expected slowdown in manufacturing, DTZ said.

CBRE said in another report that investments in strata-title industrial property remained "robust" in the third quarter, as investors continued to shift from residential properties.

Tan Boon Leong, Colliers International's executive director of industrial services, feels the shift from residential properties to commercial assets is to be expected.

"Industrial properties have the highest yields among the asset class of properties," he said. "And since everyone wants to seek higher returns and banks are offering lower rates, there is interest in industrial properties."

He believes it is not time to declare overheating in the market, pointing to the stable industrial rent outlook and the moderating of prices from the first two quarters of the year from his research. He said current measures, including recent efforts to cool the industrial market by the government, are sufficient.

Nicholas Mak, executive director, research and consultancy, at SLP International, agrees.

"In the past few months, speculative investment of industrial properties had declined," he said. "Most of the buyers of industrial premises are businesses that are buying for their own uses.

"Any additional measures could potentially hurt businesses and reduce the competitiveness of businesses in Singapore.

"Unlike residential properties where one person can only occupy one home at any one time, businesses may need to occupy more than one industrial property."

There are reasons besides speculation for the upward trend in industrial prices, CBRE said, such as increasing demand for quality space and more MRT stations coming up close to business parks.

Ms Chua from DTZ strikes a cautious note.

"True, industrialists could be crowded out by the speculative activities in the sector. Therefore, we do not rule out the government introducing further cooling measures in the industrial sector."

Such measures could come in the form of seller's stamp duty or limits to the loan-to-value ratio, she said.