Further downside seen for industrial occupancy, rents, prices

Singapore - The supply of industrial space this year and the next is expected to exert further downward pressures on occupancy rates, JTC said on Thursday as it released data showing a continual slide in industrial prices and rents in the fourth quarter of last year.

While it stressed "the wide options available for industrialists planning to expand their operations", consultants reckoned that such business expansion may not be forthcoming in current economic conditions and hence, rents and prices of industrial space may dip further.

"The dark cloud over the industrial and manufacturing landscape is not likely to lift in the immediate term," said JLL head of research for South East Asia and Singapore Chua Yang Liang. "As global demand remains weak with little improvement expected for larger economies such as China and Europe, we expect rents among the different industrial types to continue softening by up to 5 per cent year on year in 2016."

JTC said in its market report that prices and rents of industrial space fell 1.7 per cent and 2.1 per cent respectively last year from 2014. During the fourth quarter, prices and rents slipped 1.5 per cent and 1.1 per cent respectively from a quarter ago.

This was in tandem with waning occupancy rates on average, which fell 0.3 percentage point during the year to 90.6 per cent by end-2015 as the increase in supply oustripped that of demand.

The average vacancy rate across industrial space was 9.4 per cent as at end-2015, the highest in eight years, according to JTC.

Multiple-user factories saw the steepest fall in rents of 3.3 per cent last year. The rental weakness in multiple-user factories was most pronounced in the north-east region, where rents slumped 11.3 per cent for the full year and 2.9 per cent during the fourth quarter amid an influx of completed stock.

Rents of Business-2 (B2) space meant for heavy industrial uses fell a steeper 6 per cent for the full year compared to the 2.5 per cent fall for Business-1 (B1) space meant for light industrial uses, though quarter-on-quarter rental decline for B1 space accelerated from 0.8 per cent in the third quarter to 1.3 per cent in the fourth quarter.

The drag on overall price index for industrial space came from both single-user factories and multiple-user factories, where prices dipped 1.8 per cent and 1.7 per cent for the full year respectively. Among multiple-user factories, those with the shortest remaining tenure of 30 years or less marked the steepest 9.4 per cent fall in prices.

SLP International executive director Nicholas Mak noted that the rate at which prices of industrial space are declining is starting to increase, with the west region faring the worst. He is expecting island-wide vacancy rate to cross 11 per cent this year, from 9.4 per cent as at end-2015.

"As a result, the rental index is expected to drop by 4-8 per cent by the end of 2016. Similarly, industrial property prices could also contract 3-6 per cent in 2016 unless the manufacturing sector were to recover or the government were to ease the curbs imposed on the industrial real estate market," Mr Mak said.

Meanwhile, JTC reiterated that there are ample space options available for industrialists given an increase of 1.6 million sq m in total stock of industrial space last year, which included 450,000 sq m of multiple-user factory space.

Some 2.9 million sq m of industrial space - including 616,000 sq m of multiple-user factory space - will come onstream this year, significantly higher than the average annual supply and demand of around 1.7 million sq m and 1.2 million sq m in the past three years. Another 1.6 million sq m of industrial space is expected to come onstream next year.

For industrialists looking to own production spaces, there are around 2,100 units in uncompleted strata-titled developments still available for sale at end-2015, JTC added. These units span 606,000 sq m in total or 6 per cent of existing multiple-user factory space. The majority of unsold units were located in the north, and slightly more than half were B1 spaces.

Based on the number of caveats lodged for industrial properties, some 151 industrial properties were transacted in the fourth quarter - half the level seen a year ago and more than 85 per cent lower than three years ago.

Colliers International senior associate director for research and advisory Anthea To felt that prices were still elevated as at Q4 2015 considering how industrial prices have surged in the past four years.

She projected that strata industrial properties could see prices correct by up to 3 per cent this year given the ample choices available. Those who bought after the seller's stamp duty kicked in on Jan 12, 2013, and crossed the three-year holding period may be more willing to transact now, in addition to investors who have not secured tenants after a prolonged period of time, she said.

In the government's more recent attempts to keep business costs low for genuine industrialists, it has introduced smaller sites under the industrial Government Land Sales (iGLS) programme with shorter tenures targeting end-users.

Demand for land under iGLS has come down, JTC noted. For instance, tender prices for small sites targeted at single-user development in Tampines fell from around S$700 per sq m per plot ratio (psm ppr) in the third quarter of 2015 to around S$500 psm ppr in December. Tender prices for sites in Tuas also fell from over S$800 psm ppr in the second quarter to around S$400 psm ppr in the fourth quarter last year.

JTC also allocated a total of 14,400 sq m of space in ready-built factories (RBF) to industrialists in the fourth quarter. JTC LaunchPad@one-north, which targets startups and incubators saw some 2,900 sq m of space taken up in the fourth quarter. But about 22,000 sq m of RBF space was returned during the quarter, of which one-quarter of the returned standard factory space (10,600 sq m) was due to re-development.

This article was first published on Jan 29, 2016.
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