What lies ahead for industrial space?

(2011-09-21 03:33:16) 下一個
Property 2011
Published September 15, 2011

What lies ahead for industrial space?

Industrial rents and capital values could stabilise or post some upside in the first half of next year if global economic conditions do not worsen, say DOREEN GOH and MICHELLE TEE

HEIGHTENED uncertainties in the global economic arena, the less optimistic growth forecast for the Singapore economy this year, and the fall in the Purchasing Managers' Index (PMI) in July after nine months of expansion, have cast a shadow over business and economic prospects in the coming quarters.

Given the intrinsic link between the broader economy or manufacturing sector and demand for industrial space, how will this affect the performance of the industrial property market ahead? Before one attempts to gaze into the crystal ball, let us recap the performance of the industrial property market in the first six months of 2011.

Market performance in H1 2011

Leasing demand was strong in H1 2011, underpinned by the healthy economy and manufacturing sector, as well as spillover occupier demand from qualifying office users seeking refuge from high office rents.

According to statistics from the Urban Redevelopment Authority (URA), islandwide take-up of industrial space (six million square feet) exceeded net additions (5.3 million sq ft) in H1, resulting in a lowering of the vacancy rate to 7.2 per cent as at Q2 2011, compared with 7.5 per cent as at Q4 2010.

This in turn supported the continued rise in rents ranging from 10.8 per cent to 12.6 per cent in H1 for prime conventional flatted factories and warehouses, bringing their overall gains - since the bottoming in mid-2009 - to as much as 27 per cent.

High-specifications (high-specs) industrial space also experienced continued rental growth of 6.9 per cent to reach $3.41 per square foot per month in H1. Overall, high-specs industrial rents had recovered by a total of 13.7 per cent from the bottom in Q2 2010.

Similarly, capital values for industrial space stayed on an uptrend in H1 on the back of a buoyant sales market, driven mainly by the low interest rate environment, the diversion of investors' interest from the residential sector to strata-titled industrial properties, and the growing willingness of space users to secure their own premises in the wake of rising rents.

According to Colliers International's research, in H1, average capital values of prime freehold and leasehold conventional flatted factories appreciated by 5.3-8 per cent, and by 11.6-13.9 per cent, respectively. For prime freehold flatted warehouses, average capital values also strengthened by 11.1-12.6 per cent over the same period.

Overall, capital values of prime conventional flatted industrial space rebounded strongly by up to 47 per cent since bottoming in mid-2009.

Where is the market headed in H2 2011?

The second half of 2011 sees a cloudier global economic climate and risk of a double dip recession. Europe is battling a more widespread sovereign debt crisis, while Standard & Poor's downgrade of its credit rating for the US in early August sent ripples across major financial markets. These downside risks, if prolonged or worsened, would inevitably affect sentiment among businesses and manufacturers going forward.

However, debt woes in the US and Europe could also channel more funds into Asia. Singapore stands to benefit from this, given its safe, stable and conducive investment environment, strong currency as well as its triple-A credit rating.

In addition, although the business playing field has become riskier, Singapore's economic fundamentals remain healthy and the economy is still expected to attain steady growth of 5-6 per cent this year, provided that the global situation does not worsen further.

The industrial sector, particularly high-specs premises such as those in business parks, is also expected to continue to benefit from the spillover occupier demand from the office sector where rents are expected to remain on the uptrend in H2.

Hence, in spite of the presence of downside risks which could affect business strategies and expansion plans, demand for industrial space could still remain at a healthy, albeit moderate, level in H2. This is assuming that the external environment does not deteriorate further.

Supply in the pipeline is expected to moderate from over five million sq ft in H1 2011 to some 3.9 million sq ft for the rest of the year, of which a significant 47 per cent are likely to be single-user developments typically meant for owner occupation.

Thus, there is potential for industrial rents to continue to edge up, although at a more subdued pace of not more than 10 per cent in H2.

Likewise, sales of strata-titled industrial properties are expected to remain healthy in the second half of this year, thereby supporting further growth in capital values. However, as investors can be expected to adopt a more cautious stance in view of current economic uncertainties, the rate of increase in industrial capital values is generally expected to be around 10 per cent in the second half of the year.

Outlook for 2012

To a large extent, the outlook for the industrial property market next year is dependent on how current events in the US and Europe pan out, the performance of the stock market and the corresponding impact on market sentiment and demand for industrial space, and hence rental and capital value growth.

If global economic conditions do not deteriorate further, there is a possibility that industrial rents and capital values could stabilise or register some upside in the first half of next year, on the back of healthy demand.

However, any gains in rents and capital values are expected to moderate further from H2 2011's levels, in light of the fragile economic situation and ample supply of some 10.6 million sq ft of industrial space completing next year.

In the meantime, developers, investors and occupiers alike should brace themselves for the challenges ahead.

With economic cycles getting shorter, it is prudent to exercise greater care in the planning of business strategies and space requirements, so one would be better prepared to ride out the economic down cycles and capitalise on opportunities in the market.

Ms Goh is senior manager and Ms Tee is assistant manager, research and advisory, at Colliers International

[ 打印 ]
閱讀 ()評論 (0)