Industrial rents may fall further in 2010

Industrial rents may fall further in 2010
Dec 15, 2009 - PropertyGuru.com.sg

Production lines may have continued its operations but market watchers are not expecting the industrial property sector to recover in 2010.

The uncertainty of the economy, greater supply of industrial spaces and relocation of offices could cause rents to fall even further, although at a more moderate pace than this year.

“As the economy recovers and performance in the manufacturing sector improves, demand for industrial space may improve in 2010 although it is expected to remain weak,” says Chua Chor Hoon, the research head for DTZ Southeast Asia.

Conventional industrial space is expected to have a greater take-up as manufacturers bolster production, but doubts still remain over the sustainability of such growth. For the large part of 2009, warehouse and factory rents suffered as external demand for goods declined. The average monthly rent for multiple-user warehouses slipped 12.4 percent to $1.38 per sq ft (psf) between Q1 and Q3, according to the Urban Redevelopment Authority (URA). The industrial space rental index also incurred an 8.5 points loss over the same period.

However, “as the manufacturing sector returns to growth”, conventional industrial rental space could “hold firm” in 2010, says Tay Huey Ying, the research and advisory director at Colliers International.

Chua Yang Liang, head of Southeast Asia research at Jones Lang LaSalle (JLL), believes that these rents could either maintain its steady pace or slip at a more modest pace by up to 5 percent.

Sentiments have seen a slight improvement as the economy climbs out of the recession. The GDP could even expand by 5.5 percent in 2010, going by the average forecast from 20 economists polled in the latest survey by the Monetary Authority of Singapore.

2010 could also be tough for business parks and high-tech spaces, which saw immense demand from companies in 2007 and early 2008 due to soaring office rents. In fact, Ms Chua of DTZ expects these properties “to fare worst” in terms of rents and occupancies compared with other types of industrial space.

Meanwhile, CIMB analyst Janice Ding stated, “Sharply lower office rents in the central business district has reduced the attractiveness of pseudo-office space in business parks."

Dr Chua of JLL also noted, “Given the large high-tech industrial supply that is expected to come onstream, rentals are likely to continue sliding.”

Based on the JLL data, monthly high-tech space and business park rents dipped 28 percent to $2.70 psf from January to September. Dr. Chua anticipates seeing 4 to 9 percent declines in these rents in 2010.