Source : Straits Times - 4 Nov 2008
Leasing of ready-built factories turns negative for first time in 4 years
INDUSTRIAL landlord JTC Corp has reported the first slide in four years in the take-up of its ready-built factories by manufacturers and other firms. This was the result of a more cautious business environment.
Many companies pulling out of these factories cite operational consolidation as a key reason for downsizing, it said.
JTC also said the allocation of prepared industrial land slumped 38.5per cent in the third quarter year-on-year, although it was flat compared to the second quarter.
This is land rented to companies by JTC that comes complete with road access, as well as water and sewer mains, to allow these businesses to develop their facilities.
JTC’s stock of ready-built factories is now somewhat smaller after it sold $1.7 billion worth of high-rise ready-built properties to Mapletree Investments on July1, reducing its portfolio from 4.45 million sq m to 3.4 million sq m.
In the third quarter, the overall leasing of these factories, which takes into account terminated leases, fell into negative territory of -500 sq m. This is the first negative figure registered since 2004 and is significantly weaker than the net 70,800 sq m level in the second quarter.
The level of space terminated by companies in the quarter ended Sept 30 rose 26 per cent to 30,300 sq m. These companies were mostly from the service, precision engineering and electronics sectors, said JTC, releasing the figures yesterday.
Firms mostly cited ‘consolidation of operations’ for the terminations, JTC said. But occupancy of ready-built facilities remained steady at a high 95.6 per cent in the third quarter.
Manufacturing-related and supporting sectors accounted for 53 per cent of the gross take-up of prepared industrial land.
The performance in this segment typically does not show extreme swings as it involves a sizeable investment on the part of the company leasing the land.
JTC’s figures are consistent with recent Urban Redevelopment Authority data that showed that rents and capital values for most industrial properties grew at a slower pace in the third quarter, compared with the second quarter.
Occupancy of factory space in the public sector reached a high 97.2 per cent in the third quarter, the data showed.
Knight Frank’s director of research and consultancy, Mr Nicholas Mak, said the continued rise in occupancy levels for industrial space was partly caused by an office space crunch and the resulting high office space rentals.
Some businesses have sought alternative office space at industrial properties, but the office crunch has been easing as rents fall.
While the industrial sector is seeing slower growth, its performance has remained better than other property sectors here, such as residential, Mr Mak said.
‘However, going forward, the industrial property market does face some challenges, arising from either economic and financial concerns affecting manufacturers, or competition from emerging manufacturing hot spots in the region such as China, India and Malaysia.’
Mr Tan Boon Leong, Colliers International’s director of industrial sales, said: ‘If multinational companies are not too sure of what’s in store next year, they will likely put expansion plans on hold and not commit to extra space.’
He added: ‘With the contraction in the manufacturing industry, more companies are likely to terminate space.’
Industrial rents range from $1.30 to $1.60 per sq ft (psf) for factories in far-out areas, to between $4 and $5 psf for business park space, according to Mr Tan.
While industrial rents and prices will show a rise for the whole year, next year they may fall by 7 to 12 per cent, and 10 to 15 per cent respectively, said Mr Mak.
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