Production lines may be running again but market watchers do not expect the industrial property sector to bounce back next year.
Economic uncertainty, relocation to offices and a greater supply of industrial space could cause rents to fall further, though at a more moderate pace than in 2009.
‘As the economy recovers and performance in the manufacturing sector improves, demand for industrial space may improve in 2010 although it is expected to remain weak,’ says DTZ South-east Asia research head Chua Chor Hoon.
Conventional industrial space could see greater take-up as manufacturers ramp up production, but doubts linger over whether the growth can be sustained. For the large part of this year, factory and warehouse rents suffered as external demand for goods shrank. According to the Urban Redevelopment Authority (URA), the median monthly rent for multiple-user warehouses fell 12.4 per cent to $1.38 per square foot (psf) between the first and third quarters. The industrial space rental index also lost 8.5 points over the same period.
But landlords may soon have some reason to relax a little. Colliers International research and advisory director Tay Huey Ying says that ‘as the manufacturing sector returns to growth’, rents of conventional industrial space could ‘hold firm’ next year.
Jones Lang LaSalle (JLL) head of South-east Asia research Chua Yang Liang believes that these rents could hold steady or slip at a more modest pace, by up to 5 per cent.
Sentiments have improved slightly as the economy climbs out of a recession. The GDP could even grow by 5.5 per cent next year, going by the median forecast from 20 economists polled in the Monetary Authority of Singapore’s latest survey.
What’s reining in expectations is uncertainty. Without a convincing recovery in demand from Singapore’s export markets, some observers are reluctant to predict a smooth rebound in the economy and hence, industrial rents.
The coming year could also be tough for high-tech space and business parks, which saw huge demand from companies in 2007 and early 2008 as office rents soared. In fact, DTZ’s Ms Chua expects these properties ‘to fare worst’ in terms of occupancies and rents, compared with other types of industrial space.
For one thing, high-tech space and business parks are losing tenants which have gone back to leasing commercial space. With office rents plunging and new buildings entering the market, it has become possible for companies to pay much less for good quality space elsewhere.
As CIMB analyst Janice Ding wrote in a Dec 2 report: ‘Sharply lower office rents in the central business district has reduced the attractiveness of pseudo-office space in business parks’.
JLL’s Dr Chua also notes: ‘Given the large high-tech industrial supply that is expected to come onstream, rentals are likely to continue sliding’.
JLL data shows that monthly high-tech space and business park rents fell 28 per cent to $2.70 psf from January to September. Dr Chua expects to see 4-9 per cent declines in these rents next year.
Falling rents aside, the mood in the industrial property market is improving. For instance, industrial sites put up for sale by URA in the last few months has seen healthy demand – the latest tender of a plot at Pioneer Road North drew eight bids.
The industrial market ‘may see a turnaround next year with rents bottoming at end-2010′, says DTZ’s Ms Chua.
Source: Business Times, 15 Dec 2009
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