Slumping demand for office space sees industrial rents stagnate in 3Q11

No change in average industrial rental prices at $3.45 psf/month.

Average rental values for private industrial space stagnated in Q3 2011 as leasing demand grew cautious for industrial space, according to DTZ Research.

Besides the slowing manufacturing sector, the slowdown in the office sector also has an impact on industrial demand, particularly for high-tech industrial space which is an alternative for cost conscious office occupiers, e.g. IT-related companies that qualify to be in such premises. The average rent for hi-tech industrial space which includes business space stood unchanged quarter-on-quarter at $3.45 per sq ft per month in Q3 2011. The average rent for upper-storey private industrial space remained at $1.75 per sq ft per month in Q3 2011 after rising 12.9% from the bottom in Q1 2010.

The average capital value of industrial space continued to rise but at a slower rate. The average capital value for private freehold upper-storey industrial space based on a basket of completed properties rose 2.5% QOQ to $405 per sq ft in Q3 2011 after increasing 5.6% QOQ in Q2 2011.

Ms Chua Chor Hoon, Head of DTZ SEA Research, commented: “Industrial space is more affordable compared to residential and office space. Thus investors and end-users continue to be attracted to purchase them. Recently launched industrial projects which are typically in the range of $500 to $800 per sq ft set a higher benchmark which also supported the increase in secondary prices.”

The lower tender price for the industrial GLS site at Woodlands Avenue 12 (Parcel 3) underscores the cautious mood in the industrial sector. At the close of the tender, the site received four bids with a bid spread of 27.9% compared to the adjacent plot (Parcel 2) which drew nine bids with a bid spread of more than 121.7% in June 2011. The tender price of $142 per sq ft per plot ratio for Parcel 3 is about 6.6% lower than the amount paid when the same company was awarded Parcel 2.

Ms Cheng Siow Ying, DTZ’s Executive Director, Business Space noted: “The outlook for the manufacturing industry has turned more cautious. According to the Economic Development Board, the seasonally adjusted manufacturing output excluding biomedical manufacturing contracted 4.7% month-on-month and 10.5% year-on-year in August. The Singapore Purchasing Managers’ Index in August also points towards a decline as the index stayed below the benchmark of 50 points since July. We expect rents to stay flat in the near term with downward pressure as demand for industrial space is likely to remain subdued while a substantial supply of private industrial space is expected to be completed in 2011 and 2012.”

About 19.8 million sq ft of private industrial space is expected to be completed in 2011 and 2012. This includes Ubi.1 and West Point Bizhub which were issued Temporary Occupation Permits in August and October respectively. West Park Bizcentral is expected to be completed later this year. Major developments expected to be completed next year include Changi City, Harvest@Woodlands, Hyflux Innovation Centre and North Point Bizhub.