Firm demand for industrial properties seen in Asia Pacific cities

Steady increase in rents, land and capital values expected in the next 12 months.

Colliers International’s latest bi-annual survey on industrial real estate costs across Asia Pacific revealed that industrial property markets in most Asia Pacific cities have stabilized – reflected by a firm demand – after having stayed in the doldrums for the past 12 months due to the global financial crisis.

The report assesses rents, land and capital values of single-user industrial premises, as well as rents of multi-user high-specification factories, in 13 cities across 9 countries between the period of October 2009 and March 2010.

The stabilization of the industrial markets across Asia Pacific was on the back of a turnaround of the economies in the United States and Euro-zone; which, in turn, enabled the manufacturing sector in most Asia Pacific cities to continue to improve.

In particular, export-oriented cities, such as those in China and Singapore, posted strong double-digit year-on-year (YoY) gains in manufacturing output in 1Q 2010. This contributed to a healthy demand for industrial properties across the region during the review period.

Research done on the markets revealed that rents, capital and land values for industrial premises in most of the Asia Pacific cities surveyed have hit bottom.

Industrial rents, capital and land values across the region have hit bottom
Rents of industrial properties have bottomed for a number of cities, including Delhi, Guangzhou, Hong Kong, Shanghai and Singapore.

Ms Tay Huey Ying, Director of Research and Advisory at Colliers International, says, “In Singapore, the average monthly gross rents of single-user factories in central Singapore edged up by an average of 3.8 per cent to about S$1.35 per sq ft in the current October-to-March review period. At the same time, the average monthly gross rents of warehouses in eastern Singapore increased by 6.7 per cent to about S$1.28 per sq ft.

Meanwhile, the market did not witness a high number of exits for high-specs industrial space during the review period and occupancy rate has remained stable. This is due to the firming of office rents, as office landlords took on a firmer stance in lease negotiations amid the recovering office demand. This has discouraged the flight back to office premises by firms currently located in high-specification developments.

Rents of high-specs space continued to ease, with the pace of decline slowing to 5.1 per cent, compared to the 14.1 per cent fall recorded for the previous six-month period. The average monthly gross rents of high-specs space stood at S$2.78 per sq ft in end-March 2010.”

Similarly, land and capital values of industrial properties have been boosted by healthy demand in most cities surveyed during the six-month review period.
Given that private investors and owner-occupiers remain active in the sales market, coupled with the return of the institutional investors after a 12-month lull, 43 of the 55 single-user sub-markets (comprising both factory and warehouse markets in the cities surveyed) saw capital values of industrial properties firm by up to 14.3 per cent in the six-month review period.

Ms Tay comments, “Capital values of single-user factories in central Singapore increased by an average of 3.6 per cent to S$145 per sq ft, while capital values of warehouses in eastern Singapore increased by 6.2 per cent to S$138 per sq ft during the review period.”

41 of the 55 single-user sub-markets (comprising both factory and warehouse markets in the cities surveyed) saw land values remain relatively unchanged or moderately higher than the levels recorded six months ago, reversing the downward trend seen in the last 12 months.

Institutional investors return to the industrial investment market
Unlike the previous six-month review period when institutional investors remained on the sidelines, this period saw institutional funds making a comeback to the investment scene – with acquisition activities concentrated in Australia, Japan, Singapore and Taiwan.

In particular, Singapore saw the sale of six logistics facilities worth some S$713.2 million to Cache Logistics Trust for its listing in April 2010, while insurance companies in Taiwan continued to snap up quality high-specs building due to the relaxation of investment restrictions for insurance companies.

Outlook: Steady increase in rents, land and capital values expected in the next 12 months
On the back of an expected continued recovery in global trade and economic growth, demand for industrial properties is forecast to grow further, with more manufacturers expected to expand their operations. Hence, rents, land and capital values of industrial properties in Asia Pacific are expected to see a steady increase in the next 12 months for most industrial market segments.

Ms Tay concludes, “Specifically for Singapore, the upward revision of the official GDP forecast for 2010 to between 7.0 per cent and 9.0 per cent, as well as Singapore’s exceptionally-strong preliminary growth estimate of 30.0 per cent YoY for the manufacturing sector, have raised confidence for the industrial property market.

The recovery in the exports and manufacturing sector should support an expansion in demand from manufacturers. Coupled with the return of institutional funds to the industrial market, rents, land and capital values of single-user factories and warehouses are expected to increase up to 10.0 per cent in the next 12 months.

Meanwhile, rents of high-specs space in Singapore are expected to bottom and remain stable in 2010 – on the back of the bottoming of the office market and the continued economic growth.”