New JTC rules on industrial land

Revised Subletting Policy (with effect from 1 October 2014)

http://www.jtc.gov.sg/policies-and-procedures/pages/subletting.aspx

Currently, JTC’s lessees or tenants are allowed to sublet their space to facilitate the co-location of related companies and activities for better synergy. They are also allowed to sublet temporary vacant space to other companies, putting scarce land resource to productive and optimal use. As lessees or tenants have been allocated the land for their own productive use, they have to continue to occupy the majority of the space. As such, JTC has set a limit on the maximum amount of space lessees are allowed to sublet.

Upon extensive consultation with various industrialists and industry associations, there is general agreement that 30% of the total gross floor area (GFA) is an adequate steady state space for a company to use as buffer to cater to fluctuating business volumes. As a result, JTC will be adjusting the maximum allowable sublet quantum from 50% to 30% of GFA, with effect from 1 October 2014 onwards  This sublet quantum cap does not apply to lessees subletting to their wholly-owned subsidiary or company in which they have a majority shareholding of at least 51%. In addition, given that tenancies are short term, JTC tenants will no longer be permitted to sublet their space. In the event tenants have excess space , they can renew their tenancy for a lower quantum at the end of their current term.

The changes to the Subletting Policy are reflected as follows:
The changes to the Subletting Policy are reflected as follows:
Affected Parties Current Policy
Revised Policy
with effect from
1 October 2014
End-user Lessees
Can sublet up to 50% of GFA per allocation upon Temporary Occupation Permit (TOP), to non-related companies.

Can sublet up to 50% of GFA to non-related companies within five years after obtaining TOP, and up to 30% thereafter.
Third-Party Facility Providers​​ – Can sublet up to 50% of GFA per allocation to non-anchor subtenants.

– Must sublet at least 50% of GFA per allocation to anchor subtenants​

– Can sublet up to 50% of GFA per allocationto non-anchor subtenants within five years after obtaining TOP, and up to 30% thereafter

– Must sublet at least 50% of GFA to anchor subtenants within five years from obtaining TOP, and 70% thereafter.​

No minimum occupation period for subsequent anchor subtenants.​ Minimum occupation period of three years for subsequent anchor subtenants.​
JTC’s Tenants Can sublet up to 50% of GFA to non-related companies.​ Not allowed to sublet.​
Note: All subletting applications are subject to JTC’s consent.

For additional information on the Revised Subletting Policy, please refer to the FAQs here.

Subletting

    • JTC has not commenced any legal action against you
    • You are not subletting your premises for pure office use only, unless it supports the manufacturing operations located within the premises
    • You may not sublet your premises for third-party logistics warehousing, unless prior approval has been given by JTC for you to use it for third-party warehousing
    • You are not carrying out any open land/ unauthorised subletting
    • You do not intend to sublet any open land
    • Your subtenant’s usage is Industrial and complies with other Government Agencies’ rules and regulations (e.g. Urban Redevlopment Authority (URA)’s 60:40 usage quantum)
    • Your subtenant’s usage complies with JTC’s usage guidelines (i.e. usage should be compatible with JTC’s usage zoning/ URA’s land use zoning and does not fall within the Negative List or Further Assessment List etc).
    • Central Building Plan Unit (CBPU) must have cleared your subtenant’s usage
  • Public Utilities Board must have cleared your subtenant’s proposed water consumption if the subtenant is applying for NEWater/ industrial water usage or if the potable water consumption exceeds 500 cubic meters per month.
  • For information pertaining to third party facility providers, please click here.
See also:

http://www.businesstimes.com.sg/premium/top-stories/tighter-jtc-subletting-rules-seen-crimping-reits-20140711

Sgskyline11072014e_top_story_full

In today’s article in BT, it was reported that JTC’s tightening of its subletting rules is expected to affect the Reits market here.

For sure, it will temper sale and leaseback transactions – where industrialists wishing to be asset-light and to unlock value from their properties sell their factory leases to third parties such as real estate investment trusts (Reits).

This is because Reits will probably become more selective with their acquisitions, now that they must sublet at least 70 per cent (up from 50 per cent) of their total gross floor area (GFA) to an anchor tenant five years after the factory is completed.

“If pre-acquisition, the anchor tenant does not take up 70 per cent of the space, the Reit will think twice,” said one analyst who requested anonymity.

“Take Ascendas Reit’s recent acquisition of Hyflux Innovation Centre last month. Hyflux will leaseback 50 per cent of the GFA. The centre’s other existing tenants are NEC, Covidien, American Express and Renesas Electronics Singapore. Now, Ascendas Reit will have to find a way to occupy the extra 20 per cent in three years’ time to comply with this ruling.”

The policy shift will thus result in a slowdown in Reits’ pace of acquisitions and portfolio expansion, and growth will have to come from elsewhere – organically or through development, DBS Group equity research analyst Derek Tan said.

He projects a continued tough environment for industrial Reits as an enormous imminent space supply is expected to keep moderating rents.

Undaunted yet, seven of the nine industrial Reit counters on the Singapore Exchange rose slightly on the stock market yesterday; only Cache Logistics Trust finished flat while Viva Industrial Trust dipped 0.6 per cent.

JTC wants to ensure that the Reits which have bought over industrial premises will continue to rent the bulk of the space to the industrialists. “After all, the land was allocated by JTC to the industrialist for that specific use,” it told BT.

That said, if a Reit is unable to find a single tenant to take up 70 per cent of the space, JTC does allow multiple anchor sub-tenants to occupy the requisite area, as long as they each occupy at least 1,500 sq m and satisfy certain productivity criteria.

Industry watchers say another effect of the policy could be the creation of an anchor tenants’ market.

“Going forward, Reits will probably insert stronger clauses in their agreements to disallow anchor tenants from downsizing after five years. The anchor tenant will maybe input that into rentals and ask for rent discounts. This gives it bargaining power,” said CBRE research head Desmond Sim.

As Reits offer rental concessions to secure larger anchor tenants, this may also have the unintended effect of creating a two-tier market which magnifies rental differentials between large anchor tenants and smaller tenants, said UOB Kay Hian analysts Terence Khi and Vikrant Pandey in a report.

Mr Tan from DBS believes that the pool of eligible tenants that meet the “anchor tenant” classification will shrink in tandem with JTC’s stricter definition, and industrial landlords will compete for them. “But on the flip side, these tenants will tend to be better-quality, longer-lasting ones.”

Most agree that there is still time for Reit landlords to comply with the new rule. They are given a three-year grace period until end-2017 to adjust.

Of the nine industrial trusts here, UOB Kay Hian has identified Sabana Reit as the riskiest.

Two of its buildings at Chai Chee Lane and Commonwealth Lane – which make up 11 per cent of its valuations – stand at occupancies of 53 and 69 per cent respectively. “If negotiations are not already at an advanced stage, Sabana will need to secure anchor tenants for 17 per cent of the space,” it said.

Most Reit-owned industrial buildings here measure up to the revised requirement, with some landlords like AIMS AMP Capital Industrial Reit already fully compliant. Others may even stand to benefit from the change.

“As smaller tenants squeezed out from existing sub-tenancies will have to seek alternative compliant leases, Mapletree Industrial Trust’s flatted factories … could see a surge in interest from smaller space tenants,” it said.

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