Prime industrial rents keep rising in Q2

RENTS of prime industrial spaces continued to inch up in the second quarter amid better business sentiment - in a sign of a generally vibrant sector.

Sentiment improved despite increased fears over the euro zone crisis towards the end of the second quarter.
The leasing market was abuzz with renewals and businesses that had expanded or relocated operations. But price-sensitive tenants kept rent growth in check.

Average monthly rents for prime factory space on the ground floor rose 0.4 per cent from the first quarter to $2.40 per sq ft (psf).

The price increase is just 2.8 per cent below the $2.47 psf peak recorded in the third quarter of 2008.

Space on the upper floors averaged $2.10 psf, a 1 per cent rise from the previous quarter.

That is also 16 per cent higher than the last historical peak price of $1.81 psf at the end of 2008.

Factories aside, rents at prime conventional warehouses hit new peaks in the quarter. For instance, gross rent for ground floor spaces averaged $2.50 psf, a 1.2 per cent quarter-on-quarter increase.

It is also 2 per cent higher than the last peak in 2008.

Rents for units on the upper floors were going for $2.06 psf, a rise of 1 per cent from the first quarter. That is a 17 per cent spike compared with 2008's peak.

Overall, rents of prime factory and warehouse space have recovered since the lows of 2009, when businesses were affected by the global financial crisis.

In the high-specifications industrial segment, a reduction in available vacant space in the quarter led to higher rents of $3.22 psf.

Business park space - averaging $3.90 psf - was the only industrial category where prices stayed stagnant.
As for new launches, only two projects - M38@Jalan Pemimpin and Synergy@KB - hit the market in the second quarter.

Good take-up rates for both reflect sustained industrial buying interest, even as investors become more cautious amid recent government efforts to clamp down on the unauthorised use of space.

Industrial properties are also favoured for their lower absolute cost than other property types.

It was observed that the average capital values of prime freehold factory space rose at a faster pace for the ninth consecutive quarter.

Ground- and upper-floor factory space rose 5.1 per cent and 7.1 per cent, to $665 psf and $600 psf, respectively. Similarly, ground- and upper-floor warehouse space notched 4.3 per cent and 5.3 per cent gains, to $608 psf and $533 psf, respectively.

This growth in capital values is expected to continue to outpace the rise in rents till the end of the year.
The strata-titled industrial market will continue to be supported by the low-interest rate and high-liquidity environment, and the spillover demand from the residential market due to the recent cooling measures.

The slashing of leases of new industrial sites will also boost the demand - and prices - of longer leasehold properties in the short term. Prices of prime industrial properties are forecast to increase by up to 9 per cent in the second half of the year.

And while a flurry of lease renewals are expected in the next two quarters, tenants' resistance to further rent hikes could temper rental growth rates.

Rents could rise by only 0.5 per cent in the second part of the year, compared with the 2 per cent seen in the first six months.

Source: The Straits Times – 11 July 2012