Govt trims industrial land supply after market responds to previous spike

Singapore

THE government is trimming its industrial land supply for the first half of 2018, after industrial prices and rents showed themselves to be responding as hoped to the government's supply spike in recent years.

The Ministry of Trade and Industry (MTI) on Wednesday said that it is launching six sites in the Confirmed List and seven sites in the Reserve List, with a total site area of 12.56 hectares (ha) for the next six months.

Confirmed List sites are launched according to schedule regardless of demand, while Reserve List sites are put up for tender when a developer makes a minimum offer price that is deemed acceptable to the government.

The latest launch figures are a slight dip from the eight Confirmed List sites and six Reserve List sites, with a total site area of 13.9 ha, that were launched in the second half of 2017.

Before that, in the first half of 2017, six sites on the Confirmed List and five sites on the Reserve List, spanning 11.25 ha in all, were released for sale.

JLL head of research and consultancy Tay Huey Ying said the industrial government land sales (IGLS) programme for H1 2018 reflects the government's sensitivity to the still fragile state of the industrial property market, in spite of the uplift in economic and trade conditions.

While Singapore's manufacturing purchasing managers' index has been in expansionary mode for 15 consecutive months and landlords have anecdotally reported more leasing enquiries, analysts think that rentals still have some way to fall before they bottom out in 2018.

DBS senior vice-president for group equity research Derek Tan had also noted in a recent report that the recovery in the industrial market is "uneven" as some firms are still looking to consolidate or downsize their space requirements to remain cost-efficient.

All the sites on the Confirmed List in the latest launch are zoned for heavier industrial use and come with 20-year tenures.

They are also all less than one hectare in size, which shows that the government is targeting to meet demand from industrialists and end-users, as opposed to developers and investors who would prefer light industrial, longer-lease properties.

The larger, 30-year leasehold plots meant for developers have been kept for the Reserve List.

Ms Tay said that it could also be that the government had noted that developers had not triggered any of the larger and/or 30-year leasehold sites on the H2 2017 Reserve List for sale, which may indicate their lack of appetite for industrial development land at this juncture. As a result, MTI may have decided not to place any such plots on the Confirmed List.

She added: "The measured H1 2018 IGLS programme is seen as a positive for the industrial property market as it would allow the market time to soak up the available space amid the more upbeat economic outlook. This would help to mitigate any downward pressure on industrial rents and prices in 2018."

The latest official JTC statistics for Q3 2017 had shown overall industrial rents falling for the 10th straight quarter, while the islandwide vacancy rate hit a decade high of 11.4 per cent.

Many observers think that the market could be at the tail end of the spike in supply completions which had started from 2014 and peaked this year.

Net new supply - meaning completions less withdrawals due to demolition, change of use, or other reasons - likely hit above 2 million sqm for the full-year 2017. This refers not just to completions on state land, but also those on private land, redevelopments, and land allocations from JTC.

Because construction of new properties has been slower in the last couple years due to a weaker manufacturing environment and consequent weaker demand from industrialists, supply completions from 2018 onwards is expected to taper off.

ZACD Group executive director Nicholas Mak said this may explain why the government opted to put the larger sites of 2 ha and above in the Reserve List - to prevent a possible glut. He thinks that at least one Reserve List site could be triggered in the next six months, given the complete absence of bigger sites in the Confirmed List.