Q1 industrial rents fall at faster pace

Source : Business Times - 2 Apr 2009

7% average drop q-o-q follows 3% decline in 4Q08: DTZ

Industrial rents fell faster in the first quarter of this year against a backdrop of shrinking demand amid the recession.

DTZ said yesterday the average drop was 7 per cent quarter on quarter, after a 3 per cent decline in the preceding Q4 2008.

Average rents for upper-storey private conventional industrial space fell 7.5 per cent quarter on quarter to $1.85 psf per month in Q1, after a 2.4 per cent dip in Q4.

First-storey rents fell 4.3 per cent to $2.20 psf per month in Q1, again a bigger decline than 2.1 per cent in Q4.

Hi-tech industrial property, which includes business and science park space, has been hit by a double whammy of less spillover demand from the office sector and lower industrial demand - and saw the biggest drop in rents in Q1. The average monthly rent for this space slid 9.3 per cent quarter on quarter to $3.90 psf in Q1, after a 4.4 per cent drop in Q4.

DTZ said leasing activity was quiet in Q1, as manufacturers focused on cost containment. Sub-letting activity is expected to increase over the next few quarters as tenants downsize operations and return space to the secondary market. A huge supply of 15.4 million sq ft of private industrial space is slated for completion this year. This includes about 2.4 million sq ft of business park space, of which about 48 per cent is pre-committed.

‘In the wake of weaker demand, this large impending supply of industrial space will add downward pressure on rents,’ DTZ said. Industrial property investment sales in the first three months of this year include Premium Automobile’s $12 million purchase of a site at 281 Alexandra Road for a sales, service and parts facility.

And Beng Kuang Marine’s fully owned unit Pico Enterprise, a long-term tenant of 38 Tuas View Square, obtained an option to buy the 60-year leasehold property for $7.2 million. With the economy showing no sign of bottoming, the outlook for the industrial property market is bleak, DTZ said.

‘Competition among industrial landlords is expected to intensify, especially in the face of huge new supply this year,’ it said.

‘To help ease occupancy costs, JTC Corp recently relaxed the 50 per cent sub-letting cap and allowed tenants to sub-let their entire gross floor area until Dec 31, 2011.

‘JTC and the Housing and Development Board also gave 15 per cent rent rebates to their tenants. These will add to pressure on other landlords to lower rents and offer more lease incentives or flexible lease structures to retain existing tenants and attract new ones.’