Published October 19, 2012

Industrial property prices set for moderate growth

Average transacted prices for new strata industrial units fell marginally in Q3 after rising in Q2

By Mindy Tan

PRICES of industrial properties are likely to moderate in the coming quarters as manufacturing activity loses steam.

Knight Frank research head Png Poh Soon said price growth for new sale and resale industrial properties could come off in the next two to three quarters as a result of cautious market sentiment and global economic uncertainties.

The average transacted prices for new strata industrial units recorded marginal decreases in Q3, compared with increased prices in the previous quarter, Knight Frank data showed.

The price decline was mainly registered in developments located in various industrial clusters, such as Paya Lebar, Woodlands-Sembawang-Admiralty, Macpherson and Kaki Bukit-Ubi.

Resale strata industrial properties with 30-year leases witnessed a quarterly increase of 3.8 per cent to $249 per square foot (psf). But the increase in prices has slowed significantly compared with the 28 per cent jump from Q1 to Q2.

Sixty-year and 99-year leasehold and freehold industrial properties have been transacted in line with market expectations, with strong quarterly price increases of 12 per cent, 3 per cent and 8 per cent in Q3 respectively.

Colliers International director Chia Siew Chuin expects the sector to potentially benefit from a possible uplift in market sentiment arising from the latest round of quantitative easing (QE3) by the US Federal Reserve, but anticipates a further deceleration in price growth.

"This is in view that buyers are likely to be more cautious and price-sensitive given the uncertain economic situation," she noted.

"Hence, although sellers are expected to continue to seek high prices, average capital values of industrial space are forecast to grow at a slower pace of up to 4 per cent in Q4."

According to Colliers International's research, the average capital values of ground and upper floor prime freehold factory space in Q3 hit $699 psf and $636 psf respectively. This was a 5.1 per cent and 6 per cent quarter-on-quarter increase, compared with a 5.1 per cent and 7.1 per cent quarterly gain in Q2.

How well prices will hold up will depend on the lending policies of banks in financing buyers, particularly for the new 30-year leasehold units, said Savills Singapore research head Alan Cheong.

Assuming that financing continues to be easily available, he expects prices to hold up in the medium term.

"In the longer term, however, a potential supply glut is expected to apply pressure on prices, particularly for projects that are not well located," said Mr Cheong, noting that more than 20 million sq ft of factory and warehouse space is expected to be completed next year, significantly higher than the past decade's annual average of around 9 million sq ft.

He expects rents to hold firm over the next three months, benefiting from current high industrial property prices.

Colliers's Ms Chia expects industrial rents to register slower growth of up to 1.5 per cent in the last three months of 2012, supported mainly by lease renewals, and to a lesser extent from companies relocating or expanding their premises.

Knight Frank's Mr Png, too, expects rentals to increase at a slower rate of 1 to 1.5 per cent, pushing industrial rents up by 7-9 per cent for the whole year.