Weak demand hits industrial rents, but business parks boom: DTZ

Weak demand for conventional factory space, coupled with a big injection of supply to existing stock, contributed to falling rents for industrial space in the fourth quarter of last year, said property consultancy DTZ Research on Monday (June 1).

Demand for space in business parks and high-tech industrial facilities, on the other hand, continued to rise, underpinning rents for this sector, it said, adding that the rental gap between newer and older industrial buildings is expected to widen this year.

Demand for factory space plunged to 4.8 million sq ft in the first three quarters of last year from 5.3 million sq ft in the corresponding period in 2013, weighed down by the weak outlook for manufacturing.

Factory output in November unexpectedly fell by 2.8 per cent from the same month in 2013, against the median forecast for a 0.3 per cent gain.

The weak market, exacerbated by the injection of 14.5 million sq ft of space in the past three quarters, caused rents for industrial property to fall by 1.3 per cent in the fourth quarter from the third, DTZ said.

The number of transactions for strata-titled industrial properties in the fourth quarter dropped almost 20 percent from the previous quarter. A total of 936 properties changed hands last year, down sharply from the 2,451 strata-titled transactions in 2013, as the Total Debt Servicing Ratio framework, uncertain global outlook and an expected rise in interest rates made industrial property less attractive.

Despite the weak fourth quarter, the rental market for the full year was stable, with average monthly rents for traditional industrial space inching up 1.6 per cent last year from 2013 to S$2 per sq ft.

Meanwhile, demand for business-park space was solid, with rents jumping 6.8 per cent to S$5 per sq ft, while those for high-tech space stood at S$3.20 per sq ft.

Ms Cheng Siow Ying, DTZ’s executive director of business space, said: “Demand for business parks and high-tech properties is more resilient this year, due to the increase in office rents, which motivated some qualifying occupiers to seek more affordable options in office-industrial hybrid spaces.

“Tenants prioritising cost savings and a good location will be willing to pay higher rents for newer and better-quality buildings, such as those at one-north, Aperia and Mapletree Business City. As the trend continues, the rental gap between such newer buildings and the older ones will widen,” she added.

Source : Channel NewsAsia – 6 Jan 2015

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