Glimmer of hope in industrial space

/ EdgeProp |

December 1, 2017 11:26 AM SGT

Some developers in the condominium segment introduced the Stay First Pay Later scheme to boost sales and now, listed construction and property development group Wee Hur Holdings and its joint-venture partner ZACD Group have launched a Rent to Own scheme for their Mega@ Woodlands industrial development.

Wee Hur and ZACD have launched a Rent to Own scheme at their Mega@Woodlands strata industrial development (Picture: Samuel Isaac Chua/The Edge Singapore)

Located at Woodlands Close, Mega@ Woodlands contains 512 strata ramp-up factory units approved for Business 1 and 2 uses. The strata industrial units have 30-year leases starting from 2014.

According to Wee Hur in its 3QFY2017 ended Sept 30 results announcement, Mega@Woodlands was about 35% sold. Since the launch of the Rent to Own scheme at the beginning of October, a significant number has been taken up. Tenants who participate in this scheme commit to a two-year lease during which they can choose to exercise the right to purchase. For example, if a tenant rents a 1,765 sq ft strata industrial unit on the eighth floor — the highest level — of the building, the rent is $1.28 psf a month, which translates into $2,300 a month. If the tenant decides to buy the unit six months into the lease, 80% of the rent paid during that period ($11,040) will contribute towards the down payment of the unit priced at $451,000.

Industrial space with facilities

Units on the eighth floor of Mega@Woodlands are designed as premium units that overlook landscaped gardens. Facilities on this floor include a business centre, a sky lounge, meeting rooms, a boardroom and conference rooms that are accessible to all the tenants within the building.

Other facilities on the top level are pavilions, barbecue pits, outdoor fitness stations, a gym, jogging trail and shower facilities. Amenities on the first level include a minimart, clinic and two canteens. Mega@Woodlands is one of the few ramp-up factory buildings that also has loading bays for 40-foot containers.

“Mega@Woodlands is perhaps one of the first industrial buildings to offer such an innovative Rent to Own scheme,” says Aloyscious Lee, director of property management at Corporate Visions, a home-grown property agency that focuses on business space and industrial properties. Corporate Visions has been appointed the property manager of Mega@ Woodlands. It will manage the building and facilities for the next two years until the management committee is formed.

At West Star in Tuas Bay Close, where ZACD Group is also a joint developer, the same Rent to Own scheme is being offered. West Star is a new B2 ramp-up factory building with 108 strata industrial units for sale. Prices start from $679,000 ($345 psf) for a 1,959 sq ft unit on the second level and go up to $981,000 ($440 psf) for a first-level unit. Rents start from $0.80 psf a month. SLP International, a sister company of ZACD Group, is the marketing agent for both Mega@Woodlands and West Star.

Available strata units equivalent to 2% of total stock

According to JTC Corp, as at end-3Q2017, there were about 1,000 units in uncompleted strata-titled developments still available for sale. This is equivalent to 215,000 sq m of space, representing 2% of existing multiple-user factory stock.

“Much of the space that is available comprises leftover strata units on sites sold two to three years ago,” notes Lee Chun Wye, executive director of LSZ International, a development and asset management company.

LSZ’s Lee: There are not many buildings in the Tai Seng area with large, contiguous floor plates that cater to the needs of the MNCs

In recent years, the number of sites offered for sale under the industrial government land sales (IGLS) programme has been reduced. The sites are also smaller (typically less than 5,000 sq m), have shorter leases of 20 to 22 years and are mainly targeted at single-users, adds Lee.

The measures were taken as part of the government’s overarching effort to curb speculation in the industrial market. Property cooling measures included seller’s stamp duty on industrial properties and land sold within the first three years of purchase, and halving of leases on JTC industrial land from 60 to 30 years, especially for multiple-user industrial developments.

Since 2012, conditions were imposed on buyers of industrial sites near MRT stations offered for sale under the government land sales programme: no strata subdivision for the first 10 years after the project is completed, a minimum strata unit size of 150 sq m for all multiple-user industrial developments, and stipulations on the number of cargo lifts and loading bays to be provided.

Restrictions on subletting of space were also introduced by JTC: From Oct 1, 2014, industrial tenants are permitted to sublet up to 50% of the gross floor area of their premises within the first five years of obtaining Temporary Occupation Permit (TOP). Thereafter, the cap on the space available for subletting is 30% of GFA.

Falling indices

Following this string of measures, the overall industrial price index fell 14.8% from 4Q2014 to 3Q2017. The price index was down 7.4% y-o-y and 0.9% q-o-q in 3Q2017. For multiple-user factory space, the price index reflected a 12.16% correction from 4Q2014 to 3Q2017; it was down 8.2% y-o-y and 0.8% q-o-q in 3Q2017.

The overall industrial rental index showed an 11.19% drop from 4Q2014 to 3Q2017, while multiple-user factory space saw a bigger correction of 13.23% over the same period. Business park space bucked the trend, with the price index increasing 0.5% over the three-year period.

The overall industrial rental index was down 3.2% y-o-y in 3Q2017 while that of multiple- user factory space fell 3.3%. Once again, the business park space rental index was the contrarian, increasing 2.5% y-o-y.

Flight to quality

Despite the manufacturing sector showing signs of recovery, Lester Leow, director of commercial and industrial at Corporate Visions, does not expect that to translate into a significant take-up of industrial space. “Not unless the government relaxes its policies, especially restrictions on investments in industrial property or assignment cases,” he says. “During an economic slowdown or when businesses are facing lean times, the ability to sublet their unutilised space will help with cash flow.”

Demand for industrial space today is driven predominantly by “flight to quality” — relocating from older, conventional flatted factories to new ramp-up factories and warehouses with higher specifications, notes Leow.

At end-3Q2017, upper-floor warehouse rents stood at $1.24 psf a month, down 0.8% q-o-q and 3.1% y-o-y, according to CBRE Research. Ground-floor warehouse rents were slightly higher at $1.61 psf a month as at 3Q2017, down 0.6% q-o-q and 3.1% y-o-y. “An encouraging sign observed recently was that some of the consolidation included several tenants expanding their footprints in a single building,” says Brenda Ong, CBRE executive director of industrial and logistics services, Singapore.

Ong: An encouraging sign observed recently was that some of the consolidation included several tenants expanding their footprints in a single building (Picture: CBRE)

E-commerce, logistics

The most active players in the industrial space are those in the e-commerce sector. Corporate Visions helped online furniture store Castlery relocate from Delta House in Alexandra to Mapletree Logistics Hub on Toh Guan Road East, where it has taken up 25,000 sq ft of space. Furniture and home furnishing e-retailer FortyTwo, which moved from Yishun, has now expanded its space to 60,000 sq ft at 5 Toh Guan Road East. “These moves are mainly motivated by expansion to bigger warehouse space at competitive rental rates,” says Leow.

Online giant Amazon.com, a newcomer to Singapore, took up 100,000 sq ft at Mapletree Logistics Hub on Toh Guan Road East. Amazon launched Prime Now, its two-hour delivery service, in July.

Besides e-commerce companies, logistics companies, especially those in the “last mile delivery” business, have also been active, says Ronn Chee, director of commercial and industrial at Corporate Visions. Such companies include DHL, Parcel Santa (in-estate parcel locker system) and Ta-Q-Bin (part of Yamoto Transport logistics company). Yamoto Transport has taken up 90,000 sq ft at CWT Commodity Hub.

Early this year, Yamoto Transport decided to relocate to CWT Commodity Hub at 24 Penjuru Road, taking up 90,000 sq ft

Freehold buildings in Tai Seng area sought after by investors

With leases of industrial sites offered for sale by JTC becoming increasingly shorter, it is no surprise that freehold industrial sites have become even more sought-after. This is most noticeable in the demand for the freehold industrial buildings near the Tai Seng MRT station, just off Upper Paya Lebar Road. “Freehold properties allow for a greater range of exit options for investors compared with the new sites on the IGLS programme with 20-plusyear land tenures,” says CBRE’s Ong. “They are also not bound by JTC policies and enjoy more flexibility in subletting. They have therefore caught the eye of investors.”

During the latest collective sale fever, Citimac Industrial Building was sold en bloc for $430.1 million to a foreign buyer at the close of the tender in July. The deal was brokered by Edmund Tie & Co.

In January 2017, an eight-storey freehold industrial building near the Tai Seng MRT station, formerly known as Kim Loong Building, was sold for $33.5 million in a deal brokered by CBRE. The price worked out to $771 psf, based on the net lettable area of 43,451 sq ft.

So far this year, there have been four freehold transactions at Tai Seng, with the amount totalling $472.15 million. The largest was the collective sale of Citimac Complex.

The total transaction value in 2017 to date has surpassed that for the whole of 2016, when six freehold properties changed hands for $195.2 million, of which 67.4% was foreign capital, according to CBRE. The largest purchase in 2016 was by a four-member consortium led by Nanshan Group, which acquired Harper Kitchen for $51.1 million.

Tai Seng Centre 80% taken up

China-based Nanshan Group created a stir when it purchased the former Irving Industrial Building at 3 Irving Road for $160 million in March 2015, followed by Harper Kitchen last year. The sale of both buildings was brokered by Cushman & Wakefield.

Nanshan Group has since redeveloped the building at 3 Irving Road into Tai Seng Centre, which is expected to obtain TOP soon. The 12-storey building has retail and F&B units on the first two levels and a car park on the third and fourth levels. The B1 space spans the fifth to 11th floors, while the 12th floor comprises office space.

About 80% of the B1 industrial space at Tai Seng Centre was taken up just three months after the space was offered for lease. LSZ’s Lee, the development and asset manager for Tai Seng Centre, attributes the speed of the takeup by tenants to the B1 floor plates of up to 22,000 sq ft. “There are not many buildings in the Tai Seng area with large, contiguous floor plates that cater to the needs of the MNCs,” he points out. Only two levels of the B1 industrial space have small units of 2,700 to 3,000 sq ft.

The B1 industrial space at the soon-to-be-completed Tai Seng Centre is already 80% leased

One of the tenants moving into Tai Seng Centre is web-hosting company Vodien Internet Solutions, which will occupy 10,000 sq ft. According to sources, Marvell Asia, the regional arm of California-headquartered chipmaker Marvell Technology Group, will be a new tenant at Tai Seng Centre, taking up about 55,000 sq ft across 2½ floors.

Meanwhile, marketing of the retail and F&B space on the first two levels of Tai Seng Centre has just begun. According LSZ’s Lee, the plan is to have more lifestyle elements, such as restaurants, cafés and a food court.

New users

As a result of automation, Panasonic, a brand synonymous with home appliances, has become more of an R&D-based company. With a leaner workforce and reduced space requirement, Panasonic is allowed to sublet about 30% of its total GFA of 600,000 sq ft on Bedok South Avenue 1. Corporate Visions was the appointed marketing agent.

Directors at Corporate Visions (from left): Leow, Chee, Lee and Koh

Some of the new tenants at Panasonic’s building include women’s lingerie and intimate apparel brand Sorella, which took up 45,000 sq ft, and public-listed tech company CSE Global, which has also taken up 45,000 sq ft.

There is also a shift in demand for industrial and business park space at Jurong East as it is poised to be Singapore’s second CBD, says Corporate Visions’ Leow. A number of consultancies, especially those specialising in mechanical and electrical engineering services, such as TY Lin International Group, have moved there in anticipation of new infrastructural projects in the pipeline with the redevelopment of Jurong Country Club and Raffles Country Club, which will make way for the Kuala Lumpur-Singapore High Speed Rail project.

According to Adrian Koh, who founded Corporate Visions in 2002 and is now director of commercial and industrial, the slowdown in the oil & gas as well as offshore & marine services sectors has also led to the affected companies in these industries having to give up their quality workshop space.

“Such space was rarely available in the last 10 to 20 years,” he says. “It’s a good opportunity for other tenants to come in, and it’s particularly attractive to MNCs and companies in the aviation sector.”

This article appeared in EdgeProp Pullout, Issue 808 (Dec 4, 2017)

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