Rents, Occupancy For Industrial Space Reach Record Levels

Source : The Straits Times, Dec 20, 2007

Supply crunch for prime office space boosts demand for these properties

INDUSTRIAL property - long the ugly duckling of the real estate sector - is reaping sky-rocketing rents, thanks to the shortage of office space in prime areas.
This squeeze is forcing firms that would traditionally occupy space in or near the Central Business District to set up shop elsewhere - in premises they would not normally consider.

It has led to a brisk year for industrial property, especially hightech space, with occupancy up and rents going through the roof.

‘Rents have appreciated more than 25 per cent across the board this year,’ said Knight Frank’s industrial department head, Mr Lim Kien Kim. ‘We are now moving nearer the 1996 peak, in terms of rents and capital values.’

Average monthly rents for high-tech space, or high quality space suitable for businesses, has risen 37.5 per cent this year to $2.75 per sq ft (psf).

The average occupancy for high-tech space rose to 92.8 per cent from 91.1 per cent last year, said CB Richard Ellis (CBRE).

The consultancy’s director for industrial and logistic services, Mr Bernard Goh, said: ‘The increase in rents and occupancy rates for high-tech space is likely to continue as large injections of office and high-tech stock are not expected until after 2009.’

Business parks have also become more popular with traditional office tenants. Citigroup, for one, has said it will lease two facilities at Changi Business Park for its back-office operations.

The average occupancy rate for business parks will have risen 5 percentage points to around 89 per cent by the end of the year.

Banks, especially, are moving back-room operations to suburban industrial locations. Deutsche Bank, HSBC and American Express have all taken space at The Comtech in Alexandra Terrace.

‘It is not sustainable for banks to pay $15 to $20 psf for prime space,’ said Mr Donald Han of Cushman & Wakefield. ‘High-tech industrial space or business parks are going for $3 to $4 psf.’

Even humble factory space has plenty of suitors. Average monthly rents rose to $1.45 psf for ground floor units and $1.20 psf for upper floor ones - up 20 cents psf from last year, said CBRE.

Rents for ground-floor warehouses hit $1.45 psf, from $1.25 psf a year ago. In the third quarter, warehouse occupancy passed 90 per cent for the first time.

Developers have responded to the buoyant sector by snapping up land. Several business park sites were awarded this year and the Government has sold 10 industrial plots, up from seven last year.

One site in Commonwealth Drive/Lane was sold for a record $171 psf of potential gross floor area. Prices of the other nine plots ranged from $23 psf to $72 psf.

Next year, rents and occupancy rates for all industrial space should continue growing.

‘The effects of the United States sub-prime woes might impact demand for industrial space in the short to medium term but overall, manufacturers are expected to continue investing in Singapore,’ said CBRE’s Mr Goh.

Mr Lim of Knight Frank expects rents to grow by 10 to 15 per cent next year.