Industrial rents stagnated in 2H11

As rental growth for industrial space eased to 4.9% in 2011.

Average rents for industrial space stagnated in the last six months after moderate growth in the first half of 2011 according to research by DTZ.

Average rent for first-storey conventional private industrial space rose 4.9% in H1 2011 to $2.15 per sq ft per month but stalled in H2 2011 against the backdrop of a slowdown in manufacturing and exports. The 4.9% growth in rental values for first-storey private industrial space for the whole of 2011 is slightly below the 5.1% seen in 2010.

Singapore’s economic growth slowed down to an estimated 4.8% in 2011 after an exuberant growth of 14.5% in 2010, with the fourth quarter estimated to have contracted 4.9% on a seasonally-adjusted quarter-on-quarter annualised basis. Manufacturing output fell in 2011, marred by supply-side disruptions from the Japan earthquake and Thailand floods, and the fall in global demand as the eurozone debt crisis deteriorated.

Ms Cheng Siow Ying, DTZ’s Executive Director, Business Space noted: “The slowdown in the office property market also spilled over to the higher-end of the industrial property market. The average rent for business park space stagnated at $4.38 per sq ft per month in H2 2011 after growing 6.6% in H1 2011. Likewise, average rents for hi-tech industrial space rose 6.0% in H1 2011 and remained unchanged at $3.00 per sq ft per month for the rest of 2011. With the average rent of decentralized offices in Tampines Finance Park only slightly higher at $4.95 per sq ft per month in Q4 2011 there is ample choice for qualifying business occupiers.”

In contrast, capital values for industrial space continued to rise in the second half of 2011 buoyed by investor demand. Transactions of strata factory space, proxied by caveats lodged, rose more than 10% to 1,733 in 2011 compared to 1,562 transactions recorded for the whole of 2010.

The average capital value for upper-storey resale private conventional industrial space rose 1.2% QOQ to $410 per sq ft in Q4 2011, more than 10% above the previous peak of $370 per sq ft in Q3 2008. The average capital value for first-storey resale private conventional industrial space was unchanged at $555 per sq ft in Q4 2011 after increasing 1.5% QOQ in Q3 2011, on par with the previous peak in Q2 2008. For the whole of 2011, capital values for first-storey resale private industrial space rose 5.7% while that for upper-storey resale private industrial space grew 10.8%.

Ms Chua Chor Hoon, Head of DTZ Asia Pacific Research, commented: “Besides the cooling measures in the residential market which have diverted some investors to the industrial market, the higher prices of the new launches with small units in office-like setting has also pulled up prices of resale units. With the projected slowdown in the economy and recent announcements to control the sale and size of strata-titled units in future government land sales sites, we expect more cautious buying in the market.”