Friday, January 9, 2009

SMEs feel pinch of rising rents

Some petition landlords for reductions; others seek help over disputes

SOARING rents for some industrial properties are becoming a hot issue among small and medium-sized enterprises (SMEs), with flashpoints opening up on a couple of fronts.

Worried tenants at Toa Payoh Industrial Estate have petitioned their landlord, Mapletree Investments, to reduce their rents by 20 per cent.

And the Singapore Business Federation (SBF) has helped to mediate bitter stand-offs between owners and tenants in recent weeks over rental demands.

The most serious dispute involved a landlord who tripled the rent for a local medical firm employing 75 staff.

The SBF said the firm will not renew its lease ‘and the business will have to be shut down because the owner cannot afford the rise in rent’.

Tenants at Mapletree’s estate in Toa Payoh North fear the same situation and have demanded a 20 per cent rent reduction.

One SME boss, who did not want to be identified, said: ‘I understand that about 80 per cent of the tenants here have signed the petition and Mapletree has said it is now reviewing our request for the rent cut.’

The director of a graphic design firm, located at Block 970 Toa Payoh North, said his three-year contract will need to be renewed soon.

‘My business volume has gone down by some 20 per cent but yet I have heard from my neighbours that Mapletree has increased rents by some 30 per cent - that is not a good sign for us,’ he said.
While there have been some delayed payments by tenants, Mapletree said the arrears situation at its properties is ‘well under control’.

‘There has been no perceptible trend increase in the monthly arrears from July 2008 to December 2008,’ said a Mapletree spokesman.

‘For tenants who are facing genuine difficulties in paying rent, we will sit down with them to work out solutions.’

The SBF acknowledged yesterday that landlords have a case for increasing rents, but it said the timing of rate hikes is a bugbear for firms already feeling the pinch.

The federation said five local firms, each employing between 20 and 100 staff, have asked for help over rental issues.

‘They said that they are seeing rental adjustments of between 20 and 100 per cent, and in some isolated cases, even higher,’ said SBF chief executive Teng Theng Dar.

‘In one particular case…the adjustment came up to about 2.5 to three times the old rate.’
Mr Teng said ‘there’s nothing wrong from a commercial standpoint’ as landlords are just adjusting rents to market levels, which are referenced to 2007 rates.

‘However, the economic slowdown and poor business sentiment make it extremely difficult for companies to manage when they are suddenly slapped with a spike in rent,’ he added.

SMEs already grappling with tighter credit markets have few options when it comes to rent hikes.
They could either relocate their operations, which involves considerable cost; grin and bear the higher rents and hope to struggle on; or, in the worst-case scenario, be forced to shut down.

While the situation may appear dire for some firms, the SBF said it is not critical yet and rents may still moderate.

In fact, new figures from DTZ Research show that rents of private conventional industrial space declined in the fourth quarter of last year - the first time since the third quarter of 2003.

Rents for first-storey and upper-storey private industrial space have also dipped by 2.1 per cent and 2.4 per cent respectively.

And rents for high-tech industrial property slipped 4.4 per cent in the last three months of last year compared with the same period in 2007 - the first fall since the second quarter of 2004.

The Straits Times polled 30 tenants in JTC Corporation and Mapletree properties, and found that those that renewed contracts within the last quarter of last year either did not have a rent increase or paid an additional 5 to 10 per cent.

Yet rent is a potent issue in a business community already battling a decline in orders.

All the SMEs that The Straits Times spoke to said they were hoping for rental rebates in the Budget later this month.

The SBF has raised the issue with the Government and hopes for some respite over rents, but it also cautioned against overreacting.

‘We have provided feedback to the Government that this is an issue we are concerned about, but we still need more facts, so we are now watching the situation very closely,’ said Mr Teng.

‘The global economic crisis is unprecedented and its scale and depth are something we are trying to understand, so we need to avoid speculating and just focus on getting ready for the worst-case scenario.’

Leading industrial landlords JTC, Mapletree and HDB have assured tenants that any rent adjustments will not be made without factoring in the economic conditions.

‘I understand that about 80 per cent of the tenants here have signed the petition and Mapletree has said it is now reviewing our request for the rent cut.’ - A director of a graphic design firm located at Block 970 Toa Payoh North

Source : Straits Times - 9 Jan 2009

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