Industrial property market 'likely to face headwinds'

The industrial property market ended 2015 on a "muted note" and will likely face headwinds ahead, as the business operating climate is expected to remain challenging this year, said real estate consultancy Colliers International.

"Industrialists are expected to remain cost-sensitive and cautious in assessing their real estate requirements in 2016," Colliers noted in a report out yesterday.

The cautiousness was already apparent in the fourth quarter of last year, as reflected by a drop in the number of leasing deals . Citing rental records from the Urban Redevelopment Authority's Real Estate Information System, Colliers said the number of transactions fell from 2,081 in the third quarter, to 1,953 in the last three months of 2015.

Despite the softer demand at the end of the year, Colliers said the number of leasing transactions hit a historic high of 8,353 last year, up 0.6 per cent from 2014.

That was likely due to more units being available for lease following the completion of several new industrial developments, the conversion of single-user facilities to multi-user facilities, as well as unsold units put up for lease by some developers.

Amid stiffer competition for tenants, Colliers noted that landlords were also realistic in rental expectations and took a flexible stance in lease talks. The average monthly gross rent of ground-floor prime conventional factory space fell 0.4 per cent during the quarter to $2.50 per sq ft, while that of upper-level space declined 0.5 per cent to $2.01 psf.

In the prime conventional warehouse segment, the average monthly gross rent for upper-level space fell by 0.5 per cent from the third quarter of last year, to $1.89 psf in the fourth quarter.

Meanwhile, business park rents dipped for the second straight quarter in the three months to Dec 31, falling by 0.2 per cent to $4.15 psf.

Independent high-specs premises bucked the downward trend in rentals, and "held steady" at $3.31 psf for ground-level space, and $3.13 psf for higher floors, Colliers reported.

As some industrialists prefer to lease business premises in view of the weak market sentiment and challenging outlook, it has hit the strata-titled industrial sales as well.

Colliers said sales volume was thin in the fourth quarter and the total sales tally for strata-titled industrial properties for last year will likely not cross 1,200 - making it possibly the lowest since 2006.

This year, Colliers projects that prices of prime conventional industrial properties could correct by up to 3 per cent, "given the ample choices in the market and prospective buyers' expected selective and cautious stance".

Colliers expects rents for prime multi-user conventional industrial space to dip by up to 2 per cent. The average islandwide business park rents could rise by up to 3.5 per cent, while rents for independent high-specs premises could climb by up to 1 per cent.

Wong Siew Ying

A version of this article appeared in the print edition of The Straits Times on January 27, 2016, with the headline 'Industrial property market 'likely to face headwinds''. Print Edition | Subscribe