Hi-tech rental growth gathers momentum:DTZ

The average rent for hi-tech properties which include business parks rose 3.1% quarter-on-quarter to $3.30 psf in Q1 2011.

According to DTZ, this followed the 1.6% increase in the previous quarter.

"Rents for hi-tech industrial properties are found to be highly correlated to high office rents which have moved up by 7.5% - 10% outside the CBD in Q1 2011. Business parks and high-tech industrial buildings have office-like qualities that attract cost-conscious office occupiers who quality to operate in such premises", comments Ms Chua Chor Hoon, Head of DTZ South East Asia Research.

Rents for conventional industrial space also continued on its growth momentum. The average monthly gross rent for upper-storey industrial space grew 3.0% QOQ to $1.70 per sq ft per month following an increase of 3.1% in Q4 2010. The average rent is 17.1% below the $2.05 per sq ft per month achieved during the peak in 2008.

“While the take-up for private industrial space this year is expected to be more moderate following the buoyant economic growth in 2010, industrial rents are anticipated to continue to increase as the annual average potential supply of 7.5 million sq ft between 2011 and 2013 is significantly lower than the historical 10-year average demand of 9.3 million sq ft,” noted Ms Cheng Siow Ying, DTZ Executive Director, Business Space.

Despite anticipation of a shift in investor focus from the residential sector, there was no surge in the number of transactions in the industrial sector in Q1 2011. Transactions of strata factory space, proxied by caveats lodged, fell about 30% from 385 units in Q4 2011 to 270 units in Q1 2011.

Besides February being a shorter working month and some caveats for transactions in the later part of the quarter not having been lodged, sentiments could also have been affected by concerns over higher oil prices and the fall in stock prices arising from the Middle East revolts and Japan catastrophe. Furthermore, many layman investors are not familiar with this asset class.

Buildings with the highest number of transactions in the quarter are Pantech Business Hub, WCEGA Plaza, WCEGA Tower, North Link Building and Food Xchange@Admiralty. The median transacted price for strata factory units was $600,000 in Q1 2011.

The pace of increase in capital values for industrial properties moderated in the quarter. The average capital value for freehold upper-storey factory space rose 1.1% QOQ to $374 per sq ft following an increase of 4.2% in Q4 2010. Capital values have rebounded by 18.7% since mid-2009 and surpassed the previous peak level of $370 per sq ft in Q3 2008. Capital values are forecasted to continue to rise moderately based on an economic growth of 4-6%.