Office tenants are moving to hi-tech industrial space

Average gross rent for private high-tech space may have grown to $3.45 per sq ft per month, but tenants are relocating amidst faster increase in office rents.

Ms Cheng Siow Ying, DTZ Executive Director, Business Space, said, “As office rents have increased at a faster pace, some office tenants who qualify to occupy industrial space due to the nature of their business operations are choosing to move over to business parks and high-tech industrial buildings.”

DTZ Research noted:

The average gross rent for first-storey conventional industrial space rose 2.4% (QOQ) to $2.15 per sq ft per month in Q2 2011 following a similar 2.4% increase in the previous quarter. The average rent for upper-storey conventional industrial space grew 2.9% QOQ to $1.75 per sq ft per month, also similar to the increase of 3.0% in Q1 2011.

The pace of increase in capital values for industrial properties grew in the quarter as more investors shift their focus away from the residential and office sectors where prices and potential supply are higher. The average capital value for freehold upper-storey factory space, based on a basket of existing buildings, rose 5.6% QOQ to $395 per sq ft following an increase of 1.1% in Q1 2011. This is now almost 7% higher than the average capital value recorded during the previous peak in 2008.

Ms Chua Chor Hoon, Head of DTZ South East Asia Research, commented: “There was an increase in transactions of strata industrial units since Q2 2010, above 400 units per quarter. 415 strata transactions were recorded so far in Q2 2011, slightly lower than the 429 units recorded in Q1 2011. As lodging of caveats is voluntary and is delayed, we expect the figure in Q2 2011 to rise further.”

The total potential supply between 2011 and 2015 is estimated to be about 29.7 million sq ft (net) or 5.9 million sq ft per annum including awarded government land sales sites. This includes about 279 factory and warehouse units which are expected to be completed next quarter at UB.1 by Sim Lian Group. The H2 2011 GLS programme could potentially add another 1.4 million sq ft to 3.3 million sq ft (net) of industrial space through three confirmed and six reserve sites. With the average potential supply per annum significantly lower than the historical 10-year average demand of 9.3 million sq ft, industrial rents are anticipated to continue to increase.

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