Industrial property transactions plunge 21% in Q2

Majority of sold properties were of low value.

Industrial REITs faced tough times in the second quarter, impacted by the government’s efforts to cool the industrial property market.

According to CIMB, the total value of transactions in 2Q14 dropped by a further c.21% yoy (vs -36.6% in 2Q13) to S$920m (vs S$1,161m a year ago).

“Of the properties transacted in 2Q14, the majority are of low value, with value at less than S$20m
for each transaction. The largest transaction for the period was the S$170m acquisition of Hyflux Innovation Centre by AREIT. This transaction alone accounts for nearly 18.5% of the total transacted value for the quarter,” noted CIMB.

Here's more from the report:

As a result of the tightened regulation of the industrial property market and compressed cap rates of 6-6.5% (vs long-term historical average of 6.5-7.5%) for industrial properties, industrial REIT managers have been finding it more difficult to acquire yield-accretive properties.

Coupled with high liquidity and low interest rates, the mismatch in the pricing expectations of vendors and REIT managers persists. For this reason, we expect only a limited number of REITs to report DPU growth through the acquisition of sizeable new assets in FY14.

Among the five industrial REITs under our coverage, only two acquisitions were announced in 2Q14, with AREIT buying Hyflux Innovation Centre for S$191.2m (inclusive of fees) and MLT announcing its latest acquisition of Daehwa Logistics Centre, South Korea, for c.S$31.2m.