http://www.businesstimes.com.sg/real...cupancy-at-909

Industrial capital values, rents dip in Q4; occupancy at 90.9%

JTC's latest price indices based on new methodology that takes into account more geographies, property types

By Lee Meixian

[email protected]@LeeMeixianBT

23 Jan


OVERALL industrial property prices and rentals dipped 0.1 per cent and 0.6 per cent respectively in the fourth quarter of 2014, while occupancy rates held steady at 90.9 per cent.

This is based on JTC's updated price and rental indices, which are calculated based on a new methodology with expanded coverage, taking into account more geographies and property types. With effect from Q4 2014, JTC has also updated the base year of its indices to Q4 2012, from Q4 1998 previously.

Still, the latest price index shows an unexpected 3.5 per cent year-on-year increase, driven by prices of multiple-user factories which rose 4.4 per cent from a year ago.

Terence Seow, assistant CEO, corporate, policy & planning group at JTC, said this was due to the low base in the previous year, when there was an unexplained sharp drop in prices in Q4 2013, possibly due to some change in the quality of properties transacted. The index recovered in the subsequent quarter.

The impact of growing industrial space supply was more pronounced on rentals, which fell 2 per cent year on year after rising for the past four consecutive years.

The state industrial landlord also found that tender prices for its large Industrial Government Land Sales (IGLS) sites continued to moderate. For instance, the highest bid for a large site at Tampines North Drive 1 in Q4 2014 was about 20 per cent below the highest bid for a Loyang site tendered out in May 2013.

By contrast, demand for its small IGLS plots, targeted at end-user industrialists, remained strong. The average successful tender prices for small IGLS sites stayed above S$800 per square metre in Q4 2014, similar to past quarters.

Some 2.6 million square feet and 2.2 million square feet of industrial space is expected to come onstream this year and next respectively, JTC said. This will likely cause further moderation in prices and rents.

When asked how industrial players have taken to the new subletting policy so far, which requires anchor tenants to take up at least 70 per cent of the total gross floor area (up from 50 per cent), Mr Seow said there have been concerns that reducing the amount of sublettable space may take away a portion of their rental, but the complaints were not many. That said, more cases of landlords voicing their difficulties may come next year, closer to the Dec 31, 2017, deadline.

"It's a long time for them to adjust, adapt and plan ahead, and most tenancies when they sublet are not more than three years typically. My sense is that the window is sufficiently long . . . I'm not saying that everyone's happy but we've given them enough space and enough leeway."

Besides, a detailed assessment done before introducing the new rule showed that not many companies would be affected. Mr Seow said that for those unable to comply with the rule by the deadline, JTC will assist them on a case-by-case basis.

Looking ahead, an uneven global recovery weighing on Singapore's manufacturing sector in 2015 could keep industrialists cost sensitive, said Chia Siew Chuin, director of research & advisory at Colliers. Overall industrial property prices could ease by up to 3 per cent this year as industrialists take longer to evaluate their business space needs.

Rents for conventional multi-user factories especially may ease due to mounting supply pressures, while sales of strata-titled industrial properties will stay subdued unless the gap in price expectations between buyers and sellers can be bridged. The total debt servicing ratio framework further hems buyers in.

A more bearish Nicholas Mak, SLP International executive director, believes this year will be a buyers' and tenants' market, with prices falling 4-8 per cent, and rents contracting 5-10 per cent year on year.

"There may not be enough demand to absorb the upcoming supply in 2015," he said.