Warehouse rents surge to new highs in 2Q12

Prime conventional warehouse rents for upper floor space exceeded their last peak in Year 2008 by 17%.

According to Colliers International, the latest quarterly industrial property market research conducted by Colliers International concluded that the Singapore industrial property market remained healthy in 2Q 2012. The healthy performance was supported by a general uplift in market sentiment, although there were renewed fears over the Euro zone debt crisis towards the end of the second quarter.

Leasing market
Compared to the typically-slower first quarter, the industrial leasing market witnessed more activities in 2Q 2012, which were mainly led by lease renewals, and to a smaller extent, firms expanding or relocating their business operations.

Rent growth was, nonetheless, kept in check by tenants who showed resistance towards steeper rent increases.

In 2Q 2012, prime ground floor conventional factory space commanded an average monthly gross rent of S$2.40 per sq ft – a marginal increase of 0.4 per cent quarter-on-quarter (QoQ). This is just 2.8 per cent below the peak of S$2.47 per sq ft recorded in 3Q 2008.

Prime upper floor conventional factory space commanded S$2.10 per sq ft – an increase of 1 per cent QoQ, and a 16-per cent jump from S$1.81 per sq ft recorded during the last peak in 4Q 2008.

Meanwhile, prime conventional warehouse rents in 2Q 2012 rose to a new peak for ground and upper floor space – exceeding their last peak in Year 2008 by 2 per cent and 17 per cent, respectively.

The average monthly gross rents of prime ground floor warehouse space rose by 1.2 per cent QoQ to S$2.50 per sq ft, while the upper floor warehouse space increased by 1 per cent QoQ to S$2.06 per sq ft in 2Q 2012.

According to the Survey of Business Expectations of the Manufacturing Sector for 2Q 2012 by the Economic Development Board, business sentiment picked up across all manufacturing sectors. This is despite real concerns on the global economic uncertainties relating to the Euro zone debt crisis, the strength of the United States economic recovery and high oil prices.

The positive business sentiment has been also reflected by the recovery of prime factory and warehouse rents which have sprung back to some 27 per cent to 36 per cent as of 1Q 2012, from their last trough in Year 2009.

In the high-specifications (high-specs) industrial market category, rents rose on the back of reduced vacancy during the quarter. Island-wide rents for industrial high-specs buildings gained 1.6 per cent QoQ to S$3.22 per sq ft in 2Q 2012.

Mr Tan Boon Leong （陈文龙）, Executive Director of Industrial Services at Colliers International, says, “In general, industrial buildings with better specifications or ramp-up developments that cater to 20-foot containers can command higher rents than conventional warehouse developments. There is always a healthy demand for industrial properties that feature better facilities and design.

However, there are a limited number of good quality industrial buildings in prime locations, especially those within walking distance to MRT stations. These contributed to the upward trend in rents across the various categories of industrial premises.”

Business park space was the only category that saw its average monthly gross rents stay flat for the second consecutive quarter. Rents remained at S$3.90 per sq ft in 2Q 2012.

Mr Tan explains, “Rents for business park space this quarter have improved slightly from the 1.5 per cent fall recorded in 1Q 2012. The market has experienced increased competition for tenants, given the continued decline of office rents in 2Q 2012, which has narrowed the rental gap between business park space and sub-urban office premises. The intensity of the competition for tenants could be exacerbated with the ample supply of sub-urban office space in the pipeline.”