Major investment transactions for industrial properties up to $835.7mln

CBRE expects rents for factories to continue to rise at slower pace in fourth quarter.

In Q3 2010, the average rents and capital values for factories and warehouses continued to increase but the average rent for hi- tech buildings stayed unchanged. A healthy level of activity was seen in the investment market for industrial properties. Major investment transactions for industrial properties totalled $835.7 million in Q3 2010, up from $386.3 million in Q2 2010.

Two industrial sites on the GLS programme were awarded and one other parcel was launched.

The average monthly rents for ground floor and upper floor factory units showed an increase albeit at a slower pace in Q3 2010. The average rent for ground floor units rose by 6.5 per cent to $1.65 psf while the average rent for upper floor units increased by 4.0 per cent to $1.30 psf. In Q2 2010, the average rents increased by 10.7 per cent and 8.7 per cent for ground and upper floor units respectively,  according to a CB Richard Ellis report.

A similar trend was observed for warehouses during the third quarter. The average monthly rent for ground floor warehouse units rose by 3.3 per cent to $1.55 psf while the average rent for upper floor units increased by 4.3 per cent to $1.20 psf. The average rents jumped by 11.1 per cent and 9.5 per cent for ground and upper floor units respectively in the previous quarter.

Bernard Goh, Director, Industrial & Logistics Services said “Manufacturing output eased from double- digits growth for all three months in Q2 2010 to a gain of 9.9 per cent in July and 8.1 per cent in August. As a result, while manufacturers are still upbeat, their optimism is tinged with caution this quarter. This is reflected by a slower pace of rental increase for factory and warehouse space.”

At the same time, the monthly rent for hi- tech spaces held firm at $2.45 psf in Q3 2010. Fewer office tenants are moving to hi- tech buildings to enjoy rental savings resulting in slower demand for such spaces.

The capital values for leasehold factory space increased by 7.0 per cent to $263 psf for ground floor units and $193 psf for upper floor units. Meanwhile, capital values for freehold warehouse space increased by 10.0 per cent to $408 psf and $356 psf for ground and upper floor units respectively.

An industrial site from the confirmed list of the GLS programme was awarded during the quarter. The 60- year leasehold site along Ubi Road 1 was awarded to Oxley Rising Pte Ltd who submitted the winning bid of $158.1 million ($169 psf/plot ratio). The plot has a maximum GFA of 87,131 sm (937,883 sf). In September 2010, the tender was awarded for a 60- year leasehold site in Kaki Bukit Avenue 4. Wee Hur Development Pte Ltd placed the top bid of $76.8 million ($95 psf/plot ratio).

The tender for another 60- year leasehold site will close on 18 October 2010. The site is located at Yishun Street 23/Avenue 9 and can yield a maximum GFA of 116,367 sm (1.25 million sf).

The most significant industrial investment transaction during the third quarter was the sale of 29A International Business Park for $145.0 million ($391 psf based on GFA).

The industrial REIT players were quite active during the third quarter. In August, Cambridge REIT bought two properties, paying $22.1 million ($176 psf based on GFA) for 1 & 2 Changi North Street 2 and $15.0 million ($123 psf based on GFA) for 22 Chin Bee Drive. In September 2010, MapletreeLog purchased AW Centre for $18.3 million ($155 psf based on GFA).

Mr Goh added “We expect rents for factories to continue to rise at a less robust pace in Q4 2010 as demand moderates. Driven by healthy demand from companies looking to Singapore as a platform into Asia, warehouses are expected to continue to see healthy demand in the immediate future.”