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COMMENTARY

Time for a review of rules on industrial space usage

Wednesday, January 25, 2017 - 05:50

33557062 - 07_01_2015 - fmfragrance08.jpg
A seven-storey industrial building in Geylang. "Face reality as it is, not as it was or as you wish it were." This is what Jack Welch, the former CEO of General Electric used to tell his management to acknowledge market conditions and embrace change.

"Face reality as it is, not as it was or as you wish it were." This is what Jack Welch, the former CEO of General Electric used to tell his management to acknowledge market conditions and embrace change. Singapore urban planners will do well to pay heed to this principle too, as an evolving manufacturing landscape challenges the very assumptions underpinning rules on the use of business space.This problem is not new. But it appears that for a long time, the authorities have not faced up to a new market reality. Now, the mis-use of industrial space has only become more conspicuous than before.

It is easy to blame opportunistic developers for building strata projects that meet investors' appetite but not the needs of industrialists. But even in some of the older industrial buildings that come with proper goods lifts and loading bays, floor load and ceiling height for genuine industrialists, unauthorised usage still exists.

Perhaps, current rules cannot be effectively enforced or the government has opted for a light touch to avoid inflicting further hardship on small businesses. If so, it may be time to see if these rules are keeping up with market changes.

There are three possible parameters that deserve a relook to consider their relevance in today's context - existing land-use zoning for industrial space, allowable uses, and the 60-40 rule that requires at least 60 per cent of gross space to be used for industrial activity.

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Broadly speaking, all industrial properties are categorised into two zonings - Business 1 (B1) and Business 2 (B2). B1 is usually intended for light and clean industrial use while B2 sites may be used for heavy industries that have a greater environmental impact.

Under the 60-40 rule, URA allows up to 40 per cent of gross space in industrial buildings to be used for ancillary purposes, up from the previous 25 per cent ceiling before 1999. Certain types of e-business and media activities can be allowed on a case-by-case basis. Industrial space cannot be rented to pure office or shop users such as tour or maid agencies, advertising firms, accounting and law firms.

While existing guidelines on allowable uses for industrial space are seen as too blunt on paper, they are open to interpretation in practice as there are no clear definitions on the type of trades allowed.

This means that a bridal studio, for instance, may operate in B1 buildings if the space is primarily used for core media activities - in other words, production services requiring technical facilities. Similarly, travel solutions companies can possibly operate in B1 premise if their gross space is mainly used for online e-business or call centre operations.

On the other hand, architectural firms and quantity surveyors - which undertake the upstream work of the construction industry - are not allowed to occupy B1 space. But some would argue that the justification for such trades is strong as they fall within the sector's value chain.

Increasingly, service-like activities such as R&D, marketing and sales, and customer support, as well as intellectual activities such as product design and testing are taking on a larger share of what manufacturing companies do.

This begs the question of whether a clear division between manufacturing and essential services should continue to apply. Some industry players have argued that the 60-40 rule should be flipped the other way by raising the gross-space ceiling for ancillary services to 60 per cent or even 70 per cent.

Most would remember that rules governing business space use were introduced during Singapore's early years of industrialisation. While there have been tweaks in the planning parameters along the way, these are at best "cosmetic", says CBRE director of industrial and logistics for Asia Chia Siew Chuin.

"The ruling and regulations have not changed to address the changing manufacturing trends and this is hurting landlords and the industrialists themselves," she adds. "Are private developers producing the right hardware for Singapore to chase after the industries? How is URA and JTC working together with the other government agencies to make this happen?"

As Singapore embraces the Internet of Things (IoT), new technologies, and change in business models, we have to change the way we view business functions to ensure that our real estate is able to support advances in technology and e-commerce, Ms Chia argues. Landlords too should look at their stable of assets to consider ways to refresh them.

Singapore's close rival Hong Kong has run ahead in coping with the structural change of its industries. It had in late 1989 introduced an "Industrial/Office" (I/O) zone that is flexible to accommodate either industrial or office uses following a manufacturing shift to China and rampant mis-use of industrial space. Hong Kong then went on to expand the uses within the "Industrial" zone in 2001 and started rezoning "Industrial" land to "Other Specified Uses (Business)" in the same year to accommodate a wide range of economic activities.

Affordable space

Though Singapore's JTC is experimenting a new zoning in Woodlands to provide affordable space for firms in manufacturing-related services that have no production here, there is still no update on this since the news broke in late 2014. Meanwhile, trades that fall under grey areas do have plenty of options in the market if they choose to take the chance with B1 space.

Expanding the uses for B1 space here may not be without its flipside. It is unclear if such a move may cause B1 rents to move up, conflicting with the government's goal of providing affordable space for industrialists. On the other hand, unauthorised users - who are mainly SMEs - may face financial hardship if they have to take up more costly commercial spaces elsewhere.

It is not hard to see why the regulator, stuck between a rock and a hard place, would prefer to act "on a complaint basis", when disturbances are created by unauthorised users. Meanwhile, the mis-use of industrial space continues to fester - more companies choosing to take a risk with the rules, developers buying relatively cheaper industrial land but insinuating office use, and landlords renting out industrial units at near-office rates without having paid the relevant development charge.

But on a broader scheme, it is necessary that we think about how to ride the next growth wave when it comes. To do so, our urban planning framework has to keep in step with market changes in order to provide adequate and suitable space for business users. Besides maintaining industrial stock for genuine industrialists, we need to facilitate the growth of new thriving industries as Singapore moves from an industrial city to a creative city.

Instead of kicking the can down the road, maybe it is time to take a holistic review of the planning parameters to see how our real estate offerings can remain relevant to the business needs of the future. By choosing not to hold off on difficult decisions, we are better off in the long run.

READ MORE: Misuse of industrial space ever more widespread

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