Industrial space prices, rentals in Q1 edge up despite bigger supply

Singapore

PRICES and rentals of industrial space have edged up on a quarterly basis despite an increase in supply. There has, however, been a sharp slowing in price and rental increases, and this rate of growth is likely to come under further pressure as an avalanche in supply looms.

For the first quarter of 2015, overall prices rose 0.7 per cent quarter on quarter while rents rose 0.4 per cent. This was despite a small 0.2 per cent dip in occupancy rates

Taken on a year-on-year basis, overall prices rose 0.5 per cent while rents fell 2.0 per cent. Occupancy rates fell 0.9 per cent year on year, led by warehouse occupancy which fell 1.1 per cent.

The relatively stable prices seen in the multiple-user factory segment - prices rose 0.1 per cent quarter on quarter - are unsurprising, given the continued stalemate in the strata-titled industrial sales segment in the first quarter of 2015, said Chia Siew Chuin, director of research and advisory at Colliers International.

This can be attributed to a confluence of factors, including the traditional lull period due to the Chinese New Year festivities and the lingering effect of the Total Debt Servicing Ratio (TDSR) requirement. Additionally, while the majority of sellers continued to maintain their price expectations during the quarter, buyers were anticipating a future price correction and were in no hurry to lock in a purchase.

Amid this widening price mismatch and shrinking pool of ready buyers, developers also withheld the release of units in new projects in Q1, preferring instead to focus on clearing the unsold inventory in launched developments, said Ms Chia.

According to statistics compiled by JTC as at end-February 2015, some 1,700 units in uncompleted multiple-user developments remained available for sale.

Looking ahead to the next three quarters of 2015, JTC said in a statement on Wednesday that it expects about 2.1 million square metres of industrial space - including 420,000 sq m of multiple-user factory space - to come onstream. An additional 2.5 million sq m of industrial space is estimated to come onstream in 2016.

This is significantly higher than the average annual supply and demand of around 1.5 million sq m and one million sq m respectively in the past three years, and is likely to exert further downward pressure on occupancy rates.

Looking ahead, SLP International executive director Nicholas Mak expects the overall price index to vary between minus 2 per cent and plus 4 per cent year on year.

"From our dealings with real estate developers, some are slightly reducing the prices of their unsold units either directly or by giving rebates, while other developers are gradually increasing the prices of their projects."

Colliers' Ms Chia expects overall industrial prices to ease by up to 3 per cent this year.

In the multi-user industrial space segment, competition for qualifying tenants is expected to stiffen amid mounting supply pressure. This will probably push rents down by a total of up to 4 per cent in 2015 for prime conventional industrial space.

However, rents for business parks and independent high-spec buildings are expected to continue to buck the downward trend and strengthen by up to 3 per cent and 6.5 per cent in 2015 respectively.

As for the strata-titled industrial sales segment, transaction activity is expected to remain muted as long as buyers and sellers continue to engage in a waiting game to see which party will first give way on their price expectation.

However, faced with a triple whammy of weak buying demand, rising interest rates and softening rents, sellers with weaker holding power are more likely to relent on their expected prices in the coming quarters to move sales, Ms Chia said.