No subletting of HDB industrial space from June

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http://www.straitstimes.com/archive/...-june-20150331

No subletting of HDB industrial space from June

Published on Mar 31, 2015 1:55 AM

By Rennie Whang


TENANTS of Housing Board industrial properties will not be allowed to sublet them from June 1 - though existing subletting agreements will be allowed to continue up to the end of 2017.

This is a change from the maximum 50 per cent of factory floor space that a tenant can currently sublet, the HDB said yesterday.

Experts said the move should have little impact on market rents, given the small proportion of subletting that goes on.

They also noted that plenty of vacant industrial space is on offer - about 3.9 million sq m as of the fourth quarter of last year.

The change is to better meet the main purpose of such space - "to support industrialists in operating their core businesses", said the HDB. It will also "promote more responsible and productive use of scarce industrial land, by encouraging tenants to rent only the amount of space they need".

This will align HDB's subletting policy with that of industrial landlord JTC, which last year cut the maximum amount of space that a main tenant can sublet from 50 per cent to 30 per cent.

The HDB manages nearly 12,000 industrial properties, including workshops, warehouses and factories. About 98 per cent are rented out. Some 380 tenants, or about 3 per cent of all its tenants, are subletting space.

While no figures are available for the premiums that main tenants charge for their sublet space, the rates are typically comparable to what they are paying the HDB, said Colliers International (industrial services) executive director Tan Boon Leong.

Four tenants and subletters whom The Straits Times spoke with confirmed this.

"Renting out half the unit is like sharing costs instead of paying the full price," said a manager at car-care firm Tuffi Group in Sin Ming Industrial Estate, who gave his name only as Mr Phua. He rents out half his unit.

Mr Tan said the rule change could be tough for industrialists who fall on hard times midway through a lease term. Subletters said it will be hard to keep going.

"We share the space as rent in the area is high... We might have to shut down," said a manager at TIK Car Repair Shop in Sin Ming Autocare, who asked to be named only as Jennifer. TIK uses about half a unit and the main tenant pays the HDB about $6,000 monthly.

The change guards against problems that may arise from subletting, such as either tenant running into financial problems, said Century21 chief executive Ku Swee Yong.

SLP International executive director Nicholas Mak said prices and rents have been declining. With a further 4.6 million sq m of factory space and 1.4 million sq m of warehouse space - both in gross floor area - to be completed by 2019, industrialists "have a lot of choices".

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Additional reporting by Stephanie Heng and Ong Kai Xuan

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http://www.businesstimes.com.sg/real...m-june-amended

HDB bans subletting of its industrial space from June (Amended)

Impact expected to be minimal, given small affected group and generous grace period

By Lee Meixian

[email protected]@LeeMeixianBT

31 Mar


THE Housing and Development Board (HDB) is aligning the subletting policy for its industrial land with JTC Corporation's, to ensure that Singapore's scarce industrial land is used more productively.

From June 1, new and existing tenants of HDB industrial properties will not be allowed to sublet - a change from the current policy which allows them to lease out up to 50 per cent of their factory floor space.

Tenants with existing approved subletting arrangements will be allowed to renew their subletting agreements up to Dec 31, 2017, so they have time to adjust.

This is in line with JTC banning its tenants from subletting with effect from Oct 2014. As for other end-user lessees and third-party facility providers (eg real estate investment trusts and private funds), it also cut the maximum allowable sublet quantum from 50 per cent to 30 per cent of gross floor area (GFA).

HDB on Monday said: "The main purpose of HDB's industrial space is to support industrialists in operating their core businesses... This revision also seeks to promote more responsible and productive use of scarce industrial land, by encouraging tenants to rent only the amount of space that they need."

HDB manages close to 12,000 industrial properties island-wide, including workshops, warehouses and factories. These buildings house industries such as clean and light trades, woodworking, motor vehicle repairs and food manufacturing.

About 98 per cent of HDB's industrial space is rented out on tenancies ranging from one to three years. Only two per cent of its industrial space is owned by lessees.

That said, only about 380 tenants, or 3 per cent of the total tenants, are currently subletting space in their industrial properties.

HDB's stock of industrial space also makes up just 4-5 per cent of Singapore's total industrial space as of end-2014, Colliers estimates. In other words, the affected group is very small, property consultants said.

HDB is encouraging tenants with excess space to downsize to smaller units and renew their tenancy for a lower quantum at the end of their lease term.

SLP International executive director Nicholas Mak said subtenants that have to relocate as a result of this policy change may lead to a marginal increase in occupancy levels in the private industrial market over the next two years. They stand to benefit from the current soft industrial prices and rentals and ample supply.

But Chia Siew Chuin, Colliers' director of research and advisory, pointed out that not being able to sublet will give HDB's industrial tenants less flexibility to instantaneously rescale their space requirements to respond to any change in business climate during their lease term.

Nevertheless, HDB's policy alignment with JTC shows a consistent and clear stance from the government in its effort to protect genuine industrialists' interests from those looking to profit from it, she said.

Ms Chia believes that a larger impact will still be felt from JTC's reduction of the allowable space for subletting. "Since Q4 2014, some subtenants of industrial facilities on JTC's land have sought alternative premises and this trend will continue into 2015," she said.

JTC's subletting policy tweak works hand in hand with its other amendments such as the upfront land premium third-party facility providers have to pay when buying industrial buildings from sellers on JTC-leased sites, and the requirement for a three-year minimum occupation period for subsequent anchor subtenants after the original anchor subtenant has ended its tenancy.

All these policies work to benefit industrialists over investors, and taken together, will likely slow down transactions of industrial properties on JTC-leased land, Ms Chia said.

Amendment: An earlier version of this article included a table describing how recent subletting policy revisions would affect end-user lessees and third-party facility providers. To be clear, these refer to JTC end-user lessees and third-party facility providers. The table has been updated to reflect this.