Chart of the Day: Industrial properties are heading for a tepid 2015

No thanks to oil price declines coupled with a lacklustre manufacturing sector.

Companies have shelved their expansion plans amid the decline in oil prices, leaving the industrial sector wanting.

According to a report by Savills, the waning interest in industrial properties continued into the final quarter of 2014. Only 422 strata factory and warehouse caveats were lodged, representing a steep QoQ drop of 22.4% and a signifi cant 34.2% fall from Q4/20131. Overall sales in 2014 shrank 40.2% from the 3,379 caveats lodged in 2013, marking this as the third consecutive year of decline.

The sharp drop in oil prices is beginning to be felt as companies in this sector had been active participants in the purchase of industrial properties previously. With the decline in oil prices, many have shelved their expansion plans.

The Savills basket of upper-storey factory and warehouse units shows prices moderating on a quarterly basis in Q4/2014. Freehold units had the most significant price decline of 3.4% QoQ while 30-year leasehold units slipped by 0.4%. 60-year leasehold units rebounded from Q3/2014’s 1.0% decline, rising 0.6% in Q4/2014. Throughout 2014, price movements have been more volatile as compared to previous years, mainly due to lesser transactions which led to the lack of robust price information for both buyers and sellers.

Here’s more from Savills:

The tepid manufacturing business environment is taking its toll on the rental market as demand for industrial space has diminished. Leasing volume has dropped 1.6% YoY from 1,456 deals in October and November 2013 to 1,432 deals in the same period of 2014. The number of transactions is 30.5% short of Q3/2014’s figure of 2,060 deals with a month to go.

Given this shortfall, it is unlikely that the final figure for Q4/2014 will exceed the preceding quarter. Looking at the year’s performance, the total transactions for 2014 is likely to reach 8,000, surpassing the 7,635 deals recorded in 2013.