Industrial prices, rents in 7th straight quarterly fall

Industrial prices and rentals continued their decline for a seventh consecutive quarter in the last three months of 2016. Prices fell a further three per cent in the fourth quarter, and rentals by 0.5 per cent, said JTC on Thursday.

For the year, industrial prices retreated 9.1 per cent, and rentals, 6.8 per cent. This was steeper than the 1.7 per cent decline in prices and the 2.1 per cent in rentals in 2015.

But occupancy levels bucked the trend and rose 0.4 percentage point to 89.5 per cent in the quarter; compared to a year ago, they were still down 1.1 percentage point.

SLP International executive director Nicholas Mak said the uptick in the occupancy rate could have come from more industrialists moving into their new premises; a new supply had entered the market in the last few quarters.

“The increase in occupancy in Q4 2016 may not be sustainable… There is still more completed space expected in 2017. Occupancy rate may drop again in 2017,” he said.

JTC has been ramping up supply to arrest the surging of prices and rentals in recent years. Last year, it raised the total stock of industrial space by 1.8 million square metres (sq m). This year, about 2.4 million sq m of industrial space, which includes 548,000 sq m of multiple-user factory space, is estimated to come onstream.

The state industrial landlord said this is higher than the average annual supply of around 1.8 million sq m and demand of 1.3 million sq m of the past three years.

Terence Seow, assistant chief executive for corporate, policy and planning group at JTC, said: “The downward price and rental movements were expected in light of the seller’s stamp duty imposed in 2013 to reduce speculation, more supply coming into the market as a result of the large number of industrial government land sales sites in 2010 to 2014 and the introduction of new developments by JTC, as well as the slowdown in the economy.

“Such a price and rental decline will lower the business costs for industrialists, in particular SMEs (small and medium-sized enterprises).”

Consultants offered other reasons for the fall in prices and rentals: Knight Frank head of industrial Tan Boon Leong said it could be a result of there being more shorter-tenure strata-titled industrial properties in the market.

Such properties are cheaper, but harder to obtain financing for. Their asset values depreciate more quickly, which means reselling them is more difficult, making them less attractive to investors.

Strata-titled or multi-user properties are increasingly of shorter tenure, but make up only about a fifth of the total industrial market. Single-user factories, which make up more than half the island’s supply, have also met with weaker demand due to JTC’s stringent requirements for the tenants’ value-added and productivity measures, Mr Tan said.

Cushman & Wakefield research director Christine Li cited her consultancy’s data: in Q4, factory rents moderated by 0.5 per cent to S$1.81 per square foot (psf) per month; warehouse rents declined sharply by 6.7 per cent to S$1.81 psf per month due to oversupply.

Rents for business parks on the fringes of the CBD remained stable at S$5.68 psf per month; those in business parks in outlying areas dipped by 0.3 per cent to S$3.93 psf a month. Rentals of high-tech buildings were the only exception, rising 0.7 per cent to S$2.72 psf a month.

Tricia Song, head of research at Colliers International Singapore, expects overall industrial prices to fall by up to 1.5 per cent this year, and rents to stay flat in the first half of the year, and possibly recover by 1 to 2 per cent by year’s end.

“Despite the signs of possible stabilisation in the manufacturing segment, industrialists may still be apprehensive about the uncertainties ahead for the year. We envisage industrialists to continue monitoring the current business sentiments, and delay their decisions in space commitment for H1 2017. Activities may pick up in the later part of 2017, when end-users are more certain with the market going forward.”

In the multiple-user factory space, she expects sales to remain subdued amid selective buying on fears of interest-rate increases. Even end-users could be cost-conscious and opt to rent, she suggested.

Mr Mak is more pessimistic, predicting capital values to drop by 7 to 12 per cent and rentals, by 5 to 10 per cent this year.

But he thinks the situation could improve next year; the projected supply of factory space is expected to fall to a more manageable 6.8 million sq ft in 2018.