City&Country: Offshore-- Industrial investment transactions outstrip residential in 1Q

Residential property transactions in Singapore have been hogging the headlines, of late. However, in 1Q2010, investment sales of industrial properties here actually accounted for a higher quantum than residential sales, according to DTZ Research.

Investments in the industrial segment for the quarter was S$1.02 billion (about RM2.37 billion), or 38.5% of the total transacted value. A big chunk, S$713.2 million, was accounted for by the sale-leaseback deals made by parties involved in the impending listing of Cache Logistics Trust, launched by CWT and ARA Asset Management.

According to CB Richard Ellis (CBRE) in a separate announcement, the two largest industrial property transactions were the sale of CWT Commodity Hub and CWT Cold Hub to the trust for S$323 million and S$122 million, respectively.

In contrast, residential sales in the same period totalled S$879.2 million, with Government Land Sale transactions accounting for 93.7% of the amount. For the whole quarter, total investment transactions was S$2.64 billion, down 8.5% q-o-q. However, an ongoing economic recovery is likely to lead to more activity for the rest of the year.

“Besides the purchase of land for residential development, acquisitions by REITs [real-estate investment trusts] are resuming,” says Shaun Poh, senior director of investment advisory services at DTZ.
Even as transaction volumes are poised for a lift, demand for industrial properties is steadily growing, according to CBRE in its report. In 1Q, CBRE notes that four industrial sites were launched, and a few of the industrial REIT players had made acquisitions.

End-user demand is growing, too. “We are seeing increased leasing and buying interest from tenants re-locating their operations from Loyang and the Defu vicinity, following some redevelopment plans by the respective landlords,” says Bernard Goh, director of industrial and logistics services at CBRE. “This has created some much-needed buzz in the sales and leasing activities in the market,” he adds.

CBRE forecasts occupancy rate for factories and warehouses to have increased by one percentage point in 1Q. In the preceding quarter, occupancy rate for factories was 91.9% and for warehouses, 90%. URA is slated to release the actual figures at a later date.

However, rental rates, which have been on a decline, are showing widespread signs of stabilising. “The market appears to have turned around from the past year. We are seeing improved demand for industrial space, and a rise in rents can be expected towards the tail-end of the year,” adds Goh.

In 1Q, the average monthly rental for factory units was unchanged q-o-q, at S$1.40 psf for ground-floor units and S$1.15 psf for upper-floor units. In the same period last year, ground-floor units were renting at S$1.45 psf and upper-floor units at S$1.20 psf.

Warehouse rent in 1Q also stagnated, at S$1.35 and S$1.05 psf for ground- and upper-floor units, respectively. This was the same level achieved in 4Q2007, notes CBRE.

Hi-tech space, however, bucked the trend. Monthly rental fell to S$2.45 from S$2.55 psf in 4Q2009. “Continued downward pressure on hi-tech rents are expected for the remainder of the year, owing to fewer tenants relocating into hi-tech buildings as office rents are now much more competitive,” notes CBRE.

While rental rates have largely remained the same, capital values for industrial properties are, in some segments, edging up.

Freehold warehouse space now costs S$360 and S$315 psf for ground- and upper-floor units in 1Q, compared with S$341 and S$299 psf, respectively, in 4Q2009. Capital values for leasehold factory space remained unchanged q-o-q at S$230 and S$168 psf for ground- and upper-floor units, respectively.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 802, Apr 19 - 25, 2010

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