Factory prices may rise by Q2 this year, says Colliers

INDUSTRIAL property prices could be heading up anytime by Q2 2010, says Colliers International, citing the close link between that sector and the improved residential property market.

The property consultancy took a look at historical trends and found that industrial property prices have typically lagged residential property prices by one to three quarters.

For instance, when the home price index bottomed in Q4 1998, the industrial property price index hit a trough three quarters later in Q3 1999. And when home prices reached a high in Q2 2008, industrial property prices peaked shortly after in Q3 2008.

‘If past trends were to hold true, the industrial strata property market could be poised for a recovery in Q4 2009 at the earliest, or Q2 2010 at the latest, given that the residential property market bottomed out in Q3 2009,’ Colliers said.

After a year-long decline, the private home price index managed to turn around with a 15.8 per cent gain in Q3 from the previous quarter, supported by a surge in demand for suburban homes. The government estimates that the index continued to climb by 7.3 per cent quarter-on-quarter in Q4.

Colliers added that the industrial strata market has been drawing investors’ attention. Various developments have made it ‘a good alternative for property investors traditionally familiar only with investing in residential properties’.

For one thing, there has been an increase in the supply and variety of strata-titled industrial properties, and Colliers foresees more projects being launched soon.

Industrial properties have also become more affordable as an increasing number of them are on short leaseholds of 30 or 60 years, or have units measuring less than 1,000 square feet in size. Many such properties can be bought for less than $500,000, Colliers noted.

And while properties with shorter leaseholds cost less, they can command rents similar to those of properties with longer leaseholds, leading to higher rental yields raging from 6.5-7 per cent.

Colliers observed that demand is also returning for strata-titled industrial properties. As at end-November last year, some 690 transactions had taken place in the market, and this is almost 90 per cent of the volume seen in the same period in 2008.

‘If the buying momentum continues, prices of strata industrial space could start creeping up soon,’ it said.

State industrial land put up for sale in the last few months also drew keen interest from the market, reflecting developers’ confidence that the industrial strata market is near bottom.

Source: Business Times, 14 Jan 2010