Industrial rents turning around

Average monthly gross rent for hi-tech industrial space up 1.6% in Q1

Better days may be ahead for landlords of industrial space, with rents having stopped falling for some properties and even rising slightly for others.

According to DTZ, the average monthly gross rent for hi-tech industrial space, including that at business and science parks, was $3.15 per sq ft in the first quarter of 2010.

This is a 1.6 per cent increase from Q4 2009 and marks a turnaround from that quarter’s 3.1 per cent fall.

For private industrial space on ground and upper floors, monthly rents were unchanged in Q1 this year at $1.95 psf and $1.55 psf respectively.

‘With the economy on the growth path, the industrial rental market is expected to bottom in 2010,’ said DTZ South-east Asia research head Chua Chor Hoon.

But the recovery will be slow ‘in view of the new supply coming on stream’. DTZ expects 9.3 million sq ft of new industrial space to hit the market this year, and 8.3 million sq ft next year.

Separately, Colliers International said rents for conventional industrial space edged up in Q1 as conditions in the manufacturing sector improved.

It expects such rents to rise by up to 5 per cent over the next three quarters. ‘Manufacturers planning for the upturn could drive demand for space in the coming months,’ said its research and advisory director Tay Huey Ying.

Colliers found the average monthly gross rent for prime flatted factory space on the ground floor was $1.91 per sq ft in Q1 – up 2.1 per cent from Q4 2009.

The rent for space on upper floors rose a marginal 0.6 per cent to $1.62 psf in Q1 from $1.61 in Q4.

The average monthly gross rent for prime flatted warehouses on the ground floor was $1.89 psf in Q1, remaining flat quarter-on-quarter.

The rent for warehouse space on upper floors rose to $1.52 psf, up 0.7 per cent from $1.51 in Q4.

The marginal increase in rents for conventional industrial space came on the back of a pick-up in the manufacturing sector. The government said last week that industrial production in February grew 5.9 per cent from January on a seasonally adjusted basis.

Colliers’ Ms Tay noted an increase in leasing activity in Q1 this year. With more tenants shopping for space, some landlords have had more bargaining power, she said.

But that does not mean landlords have been able to raise rents significantly. ‘Leasing activities in Q1 2010 were dominated by relocation and renewal deals, while expansions by firms remained scarce, as many manufacturers were operating on their spare capacity,’ Ms Tay said.

What provided some support for rents was the entry of foreign companies into Singapore to tap the larger Asian market, she said. For instance, US-based Lattice Semiconductor Corporation set up operations at Techpoint in Ang Mo Kio in February.

Cushman & Wakefield Singapore managing director Donald Han has also seen a pick-up in leasing activity. During the same time last year, the market was uncertain and companies were not keen to spend, he said.

Now, a two-tier market is emerging as tenants become attracted to newer space with better facilities and higher specifications. ‘The low-end industrial space will probably feel the pinch’ and landlords may have to consider retrofitting these properties or lowering their rental expectations, he said.

Source: Business Times, 1 Apr 2010