Rentals for factory and warehouse spaces surge by 6-7% in 2Q 2011

After the temporary lull in 1Q 2011 due to the Lunar New Year festive season, Singapore’s industrial property market picked up tempo in 2Q 2011, with both the sale and leasing markets experiencing a flurry of activity.

The sales market was particularly robust as investors and occupiers were treated to a strong
line-up of strata industrial project launches. This strong line-up of strata industrial project launches appealed to both traditional and non-traditional industrial property investors.

With high benchmark prices set by these new launches, owners of units in existing developments also raised their price expectations to ride on the up-cycle and buyers continued to bite. As a result, capital values of industrial properties turned in another quarter of growth, despite having surpassed 3Q 2008’s peak levels in the previous quarter.

Following the tightening industrial stock, landlords have also raised their asking rentals to capitalise on the growing demand. As such, the average monthly gross rentals for prime factory and warehouse spaces surged by 6% to 7% QoQ in 2Q 2011, their fastest quarterly growth in three years.

With economic activity staying elevated and manufacturing growth projected to be boosted by
new plant operations in the biomedical, clean energy and chemicals clusters, outlook for the industrial property market remains positive in the short to medium term.

The average capital values for prime freehold factories on the ground floor climbed 3.2% QoQ
to $574 per sq ft as of end-June 2011, while those on the upper floors rose 5.3% QoQ to $500
per sq ft during the same period. The average capital values for prime freehold warehouses on the ground floor and upper floors rose by 7.3% and 7.8% QoQ, to end the quarter at $571 per sq ft and $482 per sq ft, respectively.

By end-June 2011, prime ground floor factory and warehouse space were commanding average monthly gross rents of $2.25 per sq ft and $2.34 per sq ft, respectively. The average monthly gross rents for high-specs space stood at $3.41 per sq ft as of end-June 2011.

After chalking up substantial gains of up to 12.6% in the first half of 2011, rents and capital values of industrial properties are expected to increase more moderately in the range of 10% in the second half of the year.