Sluggish industrial leasing traps landlords between a rock and a hard place

Rents have either stayed flat or eased.

No silver lining could be found in the midst of depressing industrial rents this time as a subdued and cautious mood envelopes the sector, leaving landlords no choice but to take a flexible stance during negotiations.

Industrial leasing appetite was muddied by the usual suspects--macroeconomic issues which gained even more traction this quarter.

According to Colliers International, the string of disappointing results from the export and manufacturing sector, along with muted business expectations were all behind the gloomy industrial outlook.

“Against this increasingly uncertain manufacturing and economic backdrop, industrialists were seen exercising greater caution and taking longer to commit to their real estate requirements,” they added.

In the prime conventional factory space segment, the average monthly gross rents eased by another 0.4% quarter-on-quarter and 1.0% for ground- and upper-level space, respectively, to $2.51 per sq ft and $2.02 per sq ft as of 3Q 2015.

“This came amid the slower take-up and intensifying competition for qualifying tenants, as some developers have understandably released their unsold strata-titled industrial units for lease during the quarter in the wake of weak buying demand,” they added.

Meanwhile, average monthly gross rent for ground-level prime conventional warehouse space held its ground for the third consecutive quarter.

“However, the average monthly gross rent for upper-level space shed another 1.0% QoQ to end the quarter at $1.90 per sq ft,” Colliers International explained.

The same trend can be seen in higher-specification industrial space, as rents weren’t able to muster some marginal upside.

“Specifically, average monthly gross rent of business park space (islandwide) eased by 0.2% QoQ to $4.16 per sq ft as of 3Q 2015. This marked the first quarterly decline in business park rents, which had stayed flat or risen over the past 13 quarters,” they said.

Putting aside landlords’ more realistic rental expectations, tenants have also been pushing for lower rents amid the worsening economic climate, leading to a dip in business parks rents.

“However, while business park rents softened, the average monthly gross rents for independent high-specification industrial developments located outside the science and business parks stayed firm at the preceding quarter’s level of $3.31 per sq ft for ground-level space and $3.13 per sq ft for upper-level premises as of 3Q 2015,” Colliers International said.