Q4 could see 6-8% decrease in industrial rents

Average industrial rents island-wide could fall 6-8 per cent year on year in the fourth quarter of 2016, as industrialists take bold consolidation and relocation steps to cope with challenging business conditions, said a Knight Frank report released on Friday. Rentals have fallen 4.4 per cent cumulatively for the first half of this year, according to official data from JTC.

Tan Boon Leong, executive director and head of industrial at Knight Frank, who authored the report, said some industrialists are relocating to lower-rent locations even if the locations are not as attractive. Some used car traders and parallel car importers are also moving to smaller showroom premises amid weaker car sales.

“With softened demand and strong pipeline supply of industrial space in the market concurrently, the double- whammy situation is expected to weigh down on industrial rents further. This may be in exception to freehold industrial units where demand and rents are likely to remain resilient given the limited supply,” he said.

As for transactions, the consultancy also expects average prices for leasehold factory and warehouse units to fall 4.5 per cent to 6.5 per cent year on year (y-o-y), and those for freehold factory and warehouse units to fall 0.5 per cent to 2 per cent y-o-y in Q4.

Mr Tan expects the relocation of larger oil and gas services companies to impact smaller supporting companies, especially those in the Pioneer-Tuas cluster. “Smaller companies offering supporting services in the oil and gas industry and ecosystem are expected to face stronger headwinds in the coming two to three quarters, as oil prices continue to fall and with large foreign oil and gas services companies McDermott and Subsea 7 relocating most of their operations out of Singapore to Kuala Lumpur, Malaysia,” he said.

The Pioneer-Tuas cluster in fact suffered the largest rental decline of 9.6 per cent q-o-q in Q3 among all the regions, mainly due to the under-performing oil and gas industry, related offshore and marine services, and general manufacturing that dragged down the activities of related and supporting trades in the Business-2 cluster for heavier industrial use.

Rents in clusters that are considered more established industrial hubs were more resilient. These include the Kaki Bukit, Ubi, Paya Lebar, Eunos cluster and Kallang, Geylang, Bendemeer cluster, which respectively improved by 2.6 per cent and 1.3 per cent q-o-q.

These venues also have amenities such as food centres, and are supported by improved accessibility of stage-three Downtown Line by 2017. It will cover stations such as Bendemeer, Ubi and Kaki Bukit.

Business park rents also moderated downwards by 4.1 per cent q-o-q to S$4.22 psf pm in Q3, despite earlier talk that this hi-tech space will be better able to preserve its rental values. Nonetheless, business park space equipped with flexible layout, ready amenities, good connectivity, and clustering effect remain well-occupied, the report said.

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