Industrial rents dive but capital values still rising

Capital values of private industrial space have been on the rise for two consecutive quarters despite the persisting decline in rents.

According to DTZ Research, average capital values of first-storey and upper-storey conventional freehold industrial space rose by 2.1% in the second half of 2009 to $495 per sq ft and 3.2% to $325 per sq ft respectively. Compared to a year ago, average capital values have fallen 7.5% for first-storey space and 7.1% for upper-storey space.

Ms Chua Chor Hoon, Head of Southeast Asia Research, noted: ”The buoyancy in the residential market and recovering economy have supported buying sentiment in the industrial market. Buyers comprised a mixture of investors and owner-occupiers who are attracted by the relatively lower prices of industrial space. Most of the purchases in the second half of 2009 were for small strata units less than 3,000 sq ft in size.”

Industrial REITs on the other hand have been on the sidelines for the most part of 2009. In Q4 2009, Mapletree Logistics Trust was the first industrial REIT to make an acquisition in the year. The REIT signed a put and call option agreement to acquire a warehouse at 7 Penjuru Close for $43m, under a sale and leaseback agreement with SH Cogent Logistics Pte Ltd.

Although rents continued to fall for the fifth consecutive quarter in Q4 2009, the pace of decline has moderated. Average monthly gross rents of first-storey private industrial space fell by 2.5% or 17.0% from the peak in Q3 2008 to $1.95 per sq ft per month, while upper-storey rents declined 3.1% or 24.4% from the peak to $1.55 per sq ft per month.

Average rents of hi-tech industrial properties which include business park and science park space fell by 3.1% to $3.10 per sq per month in Q4 2009. Hi-tech industrial rents corrected the most by 31.1% from the peak in Q3 2008.

With expectations of a recovering economy, and less new supply in 2010, the industrial market may see a turnaround next year with rental decline easing off gradually and rents bottoming by end-2010, noted Ms Chua Chor Hoon. DTZ Research estimates the new supply in 2010 to fall to about 6.6 million sq ft, lower than the estimated 17.1 million sq ft in 2009 and below the 10-year average new supply of 7.9 million sq ft.