Industrial leases soar in 1Q11 despite rates increase

1Q11 average monthly rent for island-wide industrial properties rose 3.27% QoQ and 23.4% YoY to $1.58 psf, according to CBRE.

In a statement, OCBC Research noted that most of the industrial REITs also registered positive rental reversion, with the leases being renewed at a higher average rental rate during the quarter.

MIT, for instance, saw a 15.5% positive rental reversion last quarter. A-REIT also achieved positive rental reversion of between 2.1% and 6.7% for the majority of its industrial subsectors.

OCBC highlighted that the growth in leases was spurred by REIT companies, which made the largest transaction for industrial properties in Singapore.

Topping the list is AREIT, which paid its sponsor S$125.6m ($316 psf based on GFA) for Neuros & Immunos at Biopolis. CACHE also made its maiden purchase in March, snapping up 6 Changi North Way for $30.9m ($175 psf based on GFA) and 4 Penjuru Lane for $8.9m ($162 psf based on GFA).

Most recently, MLT committed S$24.5m ($148 psf based on GFA) for the acquisition of Jian Huang Building.

CBRE noted that the capital values for industrial properties were growing at a faster pace than rental values leading to cap rate compression in 1Q.

"Apart from REITs, some investors, who were priced out of the residential sector, may have invested in industrial properties instead as the latter has less stringent restrictions. This in turn helped boost demand for strata-titled industrial units," the commercial property advisor said.

Colliers International has forecasted industrial rents and capital values to experience a steady growth of 5%-10% for the whole of 2011.