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Govt trims industrial land supply amid slower manufacturing

for 1H2019, five sites in the confirmed list and seven sites in the reserve list will be released, slightly below 2H2018 figures

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An aerial view of Woodlands Industrial Park E. All the sites to be released for the first half of 2019 are zoned Business-2 for heavier and more pollutive industrial use.

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"The government is not offering big sites for developers to build big multi-user factories because it wants to have a bigger and more active role in the industrial property market." - Nicholas Mak, executive director, ZACD Group.

Singapore

THE government slightly trimmed industrial land supply for the first half of 2019, as trade war fears and concerns over a weakening manufacturing sector weighed on demand for land this year.

Under the Industrial Government Land Sales (IGLS) programme, state industrial landlord JTC will release five sites in the confirmed list and seven sites in the reserve list, amounting to a total site area of 11.86 hectares.

That is slightly down from the second half of 2018's six confirmed list sites and seven reserve list sites adding up to 12.59 ha.

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All the sites for the first half of 2019 are zoned Business-2 for heavier and more pollutive industrial use, and have a gross plot ratio (GPR) of 1.4 or 2.5.

For 1H2019, the biggest of these sites by gross floor area (GFA), at 323,000 square feet, is at Senoko Drive. It is the only site on the confirmed list to have a land tenure of 30 years.

The other sites located at Woodlands, Tampines North, Jalan Papan and Gul Circle have a land tenure of 20 years.

The five sites on the confirmed list span 4.22 ha in all, and take up about 894,000 sq ft in GFA.

That is slightly up from 2H2018, when 4.09 ha of land were released under the confirmed list, yielding some 824,000 sq ft in GFA.

Four out the seven sites on the reserve list for 1H2019 have a land tenure of 20 years. The largest two, spanning 2 ha each and with a GPR of 2.5, are at Benoi Sector and Kaki Bukit Road.

The others are located at Tuas South Link, Gul Circle, Tampines North, Gambas Way, and Tuas Avenue.

Confirmed list sites are launched according to schedule, regardless of demand.

Sites on the reserve list are triggered for sale when an interested party submits an application with a minimum purchase price that is acceptable to the government, or if more than one unrelated party submits minimum purchase prices that are close to the government's reserve price for the site within a reasonable period.

Languishing demand

Lee Nai Jia, senior director and head of research at Knight Frank, said: "The decrease in land supply is probably due to concerns of the slowing growth of manufacturing sector, especially given the uncertain external environment."

Christine Li, senior director and head of research for Cushman & Wakefield, said uncertainties in the global outlook and US-China trade war tensions moderated demand for industrial space this year.

Industrial rents slipped 0.1 per cent in the third quarter in 2018, marking a decline for the 14th consecutive quarter.

Net demand measured by absorption of multiple-user factory space for the first nine months of this year was just 1.2 million sq ft, a sharp drop-off from the 2017 full-year absorption of 3.9 million sq ft, according to Cushman & Wakefield.

Warehouse net absorption over the same period fell to 2.9 million sq ft, as compared to the 8.6 million sq ft of absorption in 2017.

There was also low demand for IGLS sites, Ms Li said, pointing out that of the four confirmed list sites in the second half of 2018 whose tenders were launched and closed, two were not awarded because the bids were deemed too low by the government. None of the four tenders received more than four bids.

The 1H2019 GLS programme continued an ongoing trend of smaller plots with shorter land tenures rolled out by the government.

Nicholas Mak, executive director of ZACD Group, said: "The government is not offering big sites for developers to build big multi-user factories because it wants to have a bigger and more active role in the industrial property market."

The small sites tend to be meant for corporations as end-users, rather than developers to build big multi-user factories, he said.

He said: "The underlying message is that the government doesn't encourage companies to use industrial property as real estate play any more."

Uncertainty continues?

Ms Li of Cushman & Wakefield says marginal rent increases could be seen in the year ahead as new supply tapers, despite the despite the slowdown in manufacturing growth.

She predicts factory rents could rise by 0.5 per cent, while warehouse rents may rise by 1 per cent as e-commerce demand heats up.

Dr Lee of Knight Frank predicts continued subdued demand for industrial land sites. "Given the uncertainty, manufacturers are likely to explore expanding without increasing physical footprint," he said.