Cambridge Industrial Trust must brace for these 6 growth concerns in 2013

Analyst predicts overseas expansion still unlikely.

According to CIMB, key concerns for 2013 include supply pressures, impact of recent policies, economic sensitivity of industrial tenants, more difficult acquisition environment, flat rents, and unlikelihood for overseas expansion.

Here's more from CIMB:

Supply pressures. Government regulation underpins the stability of the industrial sector.

While the industrial supply pipeline is strong, the supply is largely pre-committed as JTC regulations require owners of industrial buildings (except REITs) to occupy more than 50% of the spaces they approve for development.

Impact of recent policies. Increasing government intervention in the industrial space drew more attention to the impact of recent policies on industrial SREITs.

Of the measure aimed at the industrial space, management believes that the change in land lease tenure from 60 to 30 years has made it more difficult for occupiers to achieve the same returns with a shorter tenure. 

Economic sensitivity of industrial tenants. The economic sensitivity of industrial tenants appears to have been overestimated.

Cambridge’s tenant exposure to manufacturing has been reduced over the years. In 2008, CIT’s occupancies were resilient at 98-99%. Only two tenants vacated their spaces – one of which was directly due to the prevailing recession. 

A more difficult acquisition environment. Management noted that the acquisition environment had become more competitive since 4Q12, with some mismatch in pricing expectations between them and vendors.

Thus, cap rates might see some compression in 2013. In 2013/14, the focus will be on development works unless acquisitions meet their price expectations. 

Rents to stay flat. Management expected rents to stay flat in the near term, but the REIT will still see positive reversion on below-market rentals of IPO leases expiring in FY13/14. 

Overseas expansion. While overseas expansion is unlikely to happen in the near term, management has been monitoring overseas markets, with Malaysia and Indonesia the preferred markets for expansion.

Management is in constant talks with existing tenants, particularly those with manufacturing facilities in Malaysia. As a long-term target, the REIT will maintain at least 70% exposure in Singapore.