http://www.businesstimes.com.sg/spec...perty-20131029

Published October 29, 2013

Credit Suisse concerned about rise in industrial property

Further measures seen as possible after latest surge in prices and rents

By ong chor hao [email protected]


CREDIT Suisse's equity research team has expressed concern about the industrial property segment on the back of increases in rents and prices for this type of property in the third quarter of the year.

In a report yesterday, it noted that the statistics released by the Urban Redevelopment Authority (URA) last week showed the all-industrial property price index rebounding from a 0.6 per cent fall in the second quarter to a 2.8 per cent gain in Q3.

The report read: "We are concerned about the steep price increase and expect there to be negative headwinds ahead, with potentially further measures being imposed in this space to curb a bubble."

URA's data showed that industrial rents reversed a decline from the previous quarter, gaining 4.4 per cent after a 0.1 per cent fall in Q2.

This comes amid high vacancy rates in private business parks, which stayed at a flat 21.7 per cent in the third quarter, Credit Suisse noted.

Factory vacancies also rose over the second quarter, from 10.9 per cent to 11.3 per cent.

That said, the vacancy rates for warehouses fell from 7.3 per cent to 6.8 per cent, despite 530,000 square feet of new space having been added in the quarter.

The private-sector office segment clocked 16 straight quarters of positive net demand, which came to 570,500 sq ft in Q3 - a figure Credit Suisse said was "a positive surprise".

It noted that private-sector occupancy fell one per cent to 89.5 per cent in the second quarter of the year, due to an increase in the net supply of office space largely stemming from the completion of Asia Square Tower 2, the Metropolis Tower 1, and Nexus @ one-north.

"With the meaningful supply, we believe that competition among landlords may persist, which may limit the rental growth outlook for the sector. However, given (about) 90 per cent occupancy, we do not expect a correction in rents either."

Turning to retail properties, Credit Suisse said it continues to favour suburban malls, which will benefit from the rising affluence of the population. It is least positive on downtown malls as a result of the intense competition, evidenced by higher vacancies in the second quarter. Rents could come under pressure.

In residential property, Credit Suisse expects headline prices to be resilient in the near term, "given the low system vacancy and healthy household balance sheet".

While sales may come down about 30 per cent from last year to between 15,000 and 16,000 units this year, Credit Suisse does not expect an oversupply, "as we believe the government will try to balance between ensuring housing remains affordable, and not crashing prices due to high ownership".

It added that in the last four decades, property prices have not fallen more than 5 per cent except when there is a shock to the system.