Category Archives: Industrial

New Tua sites launched

JTC yesterday launched for sale two far-flung sites at Tuas Bay Close and Tuas South Street 7 (Plot 44) under its H2 2014 Industrial Government Land Sales (IGLS) programme.

JTC said their different land tenures and plot sizes were aimed at catering to different groups of industrialists – those who prefer to buy strata-titled industrial property and those who want the flexibility to custom-build their own facilities on smallish sites.

The 2.7ha site at Tuas Bay Close is one such site that can be strata-subdivided for sale. It is zoned for B2 development, for heavier and more pollutive industrial use such as metal stamping, welding and chemical processing. It comes with a 30-year tenure with a maximum gross plot ratio of 1.7, which means it can be developed into a project with up to 4.6ha gross floor area.

Analysts expect the plot to attract two to five bids, with a winning bid of S$65-80 psf per plot ratio (psf ppr).

Separately, the 0.5ha site at Tuas South Street 7 (Plot 44) was successfully triggered for sale from H1 2014’s reserve list with a minimum bid price of S$3.527 million.

A site on the reserve list is launched for tender only upon successful application by a developer, while confirmed list sites are launched according to schedule, regardless of demand.

This site is also zoned B2 and has a 20-year- 10-month tenure and a maximum gross plot ratio of 1.0. Analysts said this site will likely attract interest from contractor-developers (developers with construction and engineering arms, e.g. Koh Brothers) and average-sized industrialists.

A plot of this size would save these industrialists the need to amalgamate adjacent small sites, said R’ST Research’s director, Ong Kah Seng.

“The end-product on the site is likely to be a no-frills, low-rise single-user factory. Space allocated for such uses is set to diminish as Singapore trends towards modern, high-tech, and value-added industrial activities in sync with its global city image.”

He added that most of the sites to be released by the government in the second half are fairly large, so bidders of this site may bid competitively amid the limited new supply for such “rare” sized Tuas industrial plots.

Five to 10 bids are expected, with the winning bid anywhere between S$68-100 psf ppr.

SLP International research head Nicholas Mak believes the party who triggered this site may want it for corporate strategic reasons. “If this site were launched for tender as a confirmed list site, the possible range of top bids could be lower,” he said.

The tender for the Tuas Bay Close plot closes on Sept 23, while that for Tuas South Street 7 (Plot 44) closes on Sept 9.

The government has been releasing many Tuas sites in recent years to cater to industrialists’ end use – both small plots for those with affordability constraints and bigger ones for major industrialists with mega industrial operations.

These sites are also less likely to attract speculators and investors because of their remote locations, and for B2-zoned plots, their grimey nature. Shorter tenures, while posing some loan financing challenges, further boost their affordability.

http://www.businesstimes.com.sg/premium/singapore/jtc-launches-2-more-tuas-sites-sale-20140730

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Industrial land supply up, stabilising rents and prices

THE increase in the supply of industrial land has stabilised rents and prices in some categories while sending occupancy rates down to levels not seen since 2007.

The occupancy rate of the overall industrial property market dipped to 90.7 per cent in the second quarter, according to data from state industrial landlord JTC yesterday.

Occupancy for multiple- user factory space – intended for light industry and most commonly used by small and medium-sized enterprises – is at 87.3 per cent.

JTC attributed this to the increase in supply of land by the Government in recent years.

Ms Chia Siew Chuin, the director of research and advisory at Colliers International, said the buoyant strata-titled industrial sales market from 2010 to 2012, which resulted in more redevelopment projects in the private sector, was another contributing factor.

The dip in occupancy might also have been due to stricter enforcement over who qualifies to use the space as well as the time lag between project completion and physical occupation of the space, said Ms Chia.

Rents stabilised in the first half of the year, in line with lower occupancy, going up just 0.3 per cent. This was much lower than the 4.7 per cent increase in the second half of last year, and the 4.3 per cent hike in the first half of last year.

Industrial rents slipped 0.1 per cent in the three months to June 30 from the first three months of the year but they were still 5 per cent higher than in the same period last year.

This was slower than the average increase of 10.2 per cent per year over the past four years, JTC said.

Prices of industrial space have also settled down. They rose just 0.7 per cent in the second quarter from the first and were 3.9 per cent higher than the second quarter last year.

These rises are also a far cry from the average increase of 18.8 per cent per year over the past four years, JTC said.

The leasing market could continue to see healthy activity over the next six months, said Ms Chia, thanks to Singapore’s attractiveness as a base for regional headquarters and research and development centres for firms looking to grow their footprint in South-east Asia.

Industrial rents are expected to remain stable or ease marginally over the next six months, as industrialists are likely to remain cost-conscious, given the still-uncertain global economic environment, added Ms Chia.

Besides releasing more land, the Government “will also ensure that upcoming industrial developments better serve the needs of industrialists”, JTC said yesterday.

About 1.8 million sq m of industrial space will become available in this half of the year, of which 400,000 sq m will be multiple-user factory space.

– See more at: http://business.asiaone.com/news/industrial-land-supply-stabilising-rents-and-prices#sthash.djZk7iHz.dpuf

 

Singapore ready to control industrial prices and rentals

A SLEW of measures targeted at controlling industrial prices and rentals in Singapore are in place, JTC said on Thursday.

JTC said it has a series of development projects in the pipeline to provide space solutions for industrialists in different industries.

For instance, more space will be made available in JTC CleanTech Two @ CleanTech Park, following the project’s completion of 11,590 sqm of space in February this year, to cater to research-related companies and institutions.

Beyond these projects, JTC will continue to develop next-generation high-rise developments with productivity-enabling features to cater to industrialists in the coming years, it said.

http://www.businesstimes.com.sg/breaking-news/singapore/too-early-ease-singapore-property-cooling-measures-mas-20140724

Fancier Industrial spaces

GOOD INVESTMENT AND A GREAT PLACE TO WORK TAG.A at Tagore Lane has a glossy facade and houses a rooftop pavilion, swimming pool, basketball court, gym and barbecue pits, among various facilities

WITH their tennis courts, swimming pools and barbecue pits, the new wave of industrial developments opening their doors in 2015 and 2017 almost resemble residential properties in terms of the facilities they offer.

One example is Tagore Lane’s Business 1-zoned Tag.A. Instead of projecting the utilitarian image associated with industrial properties, Tag.A has a glossy facade and houses a rooftop pavilion, swimming pool, basketball court, gym and barbecue pits, among various facilities.

New strata-titled industrial developments touting amenities such as those offered by Tag.A have been selling well and target ambitious young businesses, noted Oxley Holdings chief executive officer Ching Chiat Kwong.

Oxley is behind four such properties, three of which have sold all their units, said Mr Ching. He added that 65 per cent of units have been sold at Oxley’s most recently launched development with similar features, Eco-Tech @ Sunview, which comes equipped with a basketball court.

“Developers (want) to differentiate their products with these facilities,” said CBRE head of research Desmond Sim. “It’s the ‘Milo dinosaur’ effect. If you don’t put a heap of Milo powder on it, it’s ‘iced Milo’ – you can sell it for only half the price. (If) you can term it something special, then people will choose the product and pay more.”

The people choosing these products are a younger generation looking for alternatives to the “cold, clean kind of look” typical of industrial properties, he added.

Colliers International executive director Tan Boon-Leong agrees: “Nowadays . . . buyers are more sophisticated. Gone are the days when you’re selling a factory with smoke coming out of the chimney.

“You’re going to hire the degree holders. (With these facilities) your value-added quantum is higher. So the professionals are the ones you’re trying to attract,” he added.

In an increasingly competitive talent market, these facilities contribute “to companies being able to secure and retain the best talent”, said Cushman and Wakefield managing director Toby Dodd.

Another practical consideration is the boost in sales these facilities could offer upper floors. These are typically the hardest floors to sell in an industrial property, said Mr Tan, but a view overlooking a swimming pool could change that.

“It will add value to the upper floors. (Otherwise) who would want to ramp up all the way to the 10th storey?”

Sales are not the only side to these properties’ value coin; the developments should also command higher rentals because of the increased maintenance fee burden that the recreational facilities place on owners.

However, once these projects are granted their Temporary Occupation Permit, they do not seem to command a premium rental compared to traditional offerings, said OrangeTee head of research and consultancy Christine Li.

One example cited by SLP Research is UB.One, a basic industrial project whose $2.88 per square foot per month average asking rent tops that of the two recreation-ready projects located nearby: Oxley Bizhub and Oxley Bizhub 2. The three projects were completed within two years of each other, said SLP.

There are several possible reasons why these facilities may not be as well received. “Some SME bosses are concerned that their workers might get distracted by these facilities and hence become less productive at work,” Ms Li said.

Mr Tan wonders how many employees would be comfortable swimming in a pool where their colleagues and bosses can see them from their cubicles. A possible explanation for the way sales have outperformed rentals is that these developments appeal to some investors, said SLP research head Nicholas Mak.

“While the lifestyle facilities may appear appealing . . . the most important factors to end-users are the accessibility, the usability (in terms of suitable specifications) and the business synergy with other companies in the vicinity,” said Mr Mak, adding that this explains why these projects tend to attract more investors than end-users.

Investors who are used to buying residential property but are new to the industrial market are the ones attracted to these properties, he said.

He believes that after the government implemented property- cooling measures such as the additional buyer’s stamp duty (ABSD) and the total debt servicing ratio (TDSR), these investors may have moved to the industrial market, drawn to industrial properties with familiar, premium residential features.

Recreational facilities remain deal sweeteners, said CBRE’s Mr Sim. “Learned investors will still look at the basics . . . price, location and the potential of the product being launched.”

BT: Non-residential deals to remain active

http://www.businesstimes.com.sg/specials/property/non-residential-deals-remain-active-h2-20140715

Non-residential deals will continue to drive investment activity in Singapore for the rest of this year, given faltering sales in the tepid private residential market, DTZ said in a report yesterday.

The report found that overall real estate investments fell around 11 per cent from the previous quarter to $4.4 billion in Q2.

And although non-residential investments (particularly offices) drove the volume, they too fell 6 per cent to $2.9 billion on muted transactions in the hospitality and mixed-use sectors.

At least six big-ticket non-residential property deals were concluded in Q2.

In the commercial sector, three office properties – Prudential Tower, Equity Plaza and Cecil House – all along Cecil Street in the central business district, were transacted. A consortium of Far East Organization, Far East Orchard and Sekisui House also beat seven others in a government land sales tender to clinch a 99-year-leasehold commercial site on Woodlands Avenue 5/Woodlands Square for $634 million.

In retail, Frasers Centrepoint Trust acquired Changi City Point at Changi Business Park for $305 million; in Industrial, Ascendas Reit bought Hyflux Innovation Centre at 80 Bendemeer Road for $191 million.

The transactions in Q2 brought the total investment volume in the first half of 2014 to $9.4 billion, 17 per cent lower than the same period last year. It also looks on track to achieve the earlier forecast of $20-25 billion for the full year.

Property companies and real estate investment trusts (Reits) were the main drivers of activity in Q2. Property companies were the largest buyers, accounting for $3.1 billion or 71 per cent of investment activity.

Reits were also very active, but their divestments of $512 million exceeded their acquisitions of $496 million, making them net sellers in Q2. This is expected to reverse in Q3, though. Acquisitions are likely to be boosted by the listing of Frasers Hospitality Trust.

The trust’s initial portfolio will comprise six hotels and six serviced residences, including two – InterContinental Singapore and Fraser Suites Singapore – located in Singapore. Both will be injected for a combined value of $824.1 million.

Swee Shou Fern, DTZ’s director of investment advisory services, expects Reit and developer acquisitions to continue supporting investment activity going forward.

“As global real estate markets start to improve, investors and funds are becoming more positive about the performance of the real estate . . . market. This could see them increasing their allocations to real estate and Singapore could benefit, being one of the most liquid markets in the region,” she said.

A Colliers report released last week turned up similar findings and projected similar trends.

It blamed the slump in residential investment sales on “the double whammy of frail investor interests in en bloc and strata-titled properties, as well as anaemic developers’ quest for land acquisition via collective sales”.

“In the next six months of the year, sales emanating from (government) land sales are forecast to stay subdued. On the private sector front, the collective sales market will likely remain depressed as the same factors that have kept it at a standstill will continue to play out in the months ahead,” it projects.

The consultancy expects interest in commercial properties to gather pace, backed by a steadily recovering office rental market.

“In addition, small and mid-sized family offices or single family offices are increasingly shifting their asset allocation towards property-oriented investments, particularly that of good quality office buildings that have potential upside in yield and capital appreciation. More of such deals can be expected to be sealed in the coming quarters,” it said.

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.

Retail rents to hold up

According to yesterday’s Business Times, Retail rents may either hold or inch up over the next few years despite new supply coming onstream. This is supported by a healthy demand for retail space and the fact that rents tend to be “sticky” in nature, property analysts say.

This projection provides cold comfort to retailers looking for a breather from rising business costs. It also goes against the government’s hopes of easing rents with its estimated 600,000 gross square metres of retail space supply from 2014 to 2016.

JLL head of research for Singapore and South-east Asia Chua Yang Liang believes that retail rents will remain stable in the next three years, supported by healthy pre-commitment levels in recently completed malls and for the uncompleted pipeline.

For instance, Orchard Gateway recently opened with nearly full occupancy while the soon-to-be completed refurbishment of Shaw Centre has secured 90 per cent commitment.

“Vacated spaces have been quickly taken up as evidenced by Metro’s takeover of Robinson’s former 130,000 sq ft premises at Centrepoint, which is poised to be completed by the fourth quarter,” Dr Chua said.

In the suburban areas, retail rents are also expected to hold up, even though a good 65 per cent of the estimated 4.1 million sq ft of new net lettable retail area to be rolled out by 2016 will be located in these regions, while only 7 per cent of the supply will be in the Orchard/Scotts area, said DTZ’s regional head (SEA) of research, Lee Lay Keng.

“Upcoming malls such as The Seletar Mall and One KM have reported healthy pre-commitments while there are still retailers looking at expanding in the suburban malls to tap the population living in nearby housing estates,” she said.

Analysts expect prime retail rents in the Orchard/ Scotts Road area to rise in the next three years given limited new supply there. Maybank analyst Ong Kian Lin estimates that Orchard Road prime retail rents will grow 2.5 per cent from 2014 to 2017 on a compound annual growth rate basis.

Suburban malls enjoy higher footfall than some prime luxury malls on Orchard Road, possibly because residents frequent the former more for necessity shopping, he observed. But the conversion rate of footfall to sales is higher at Orchard Road malls, which are more patronised by tourists.

The gap between Orchard Road and suburban mall rents has also narrowed over the years, said Savills Singapore research head Alan Cheong. Monthly rents (without the percentage gross turnover portion) for prime retail space in Orchard Road and suburban malls averaged $34.60 and $31.10 psf respectively in the first quarter.

Mr Cheong noted that grouses by retailers over high rents stem from a disconnect between declining sales and a stubbornly high rental base. Retail rents here typically consist of a base rent and a percentage of gross turnover, so a decline in sales of a tenant should translate to lower rent paid to the landlord. Yet, rents have not budged for some retailers.

Douglas Benjamin, chief operating officer of FJ Benjamin Holdings, an international luxury and lifestyle brand retailer, said: “It’s fair if you are in a mall where business is good and the landlord wants to increase your rent. But if your sales have fallen, maybe because another mall has opened next door, it doesn’t make sense for your landlord to want to raise rents.”

But a study by the Ministry of Trade and Industry (MTI) showed that for most of the renewals in 2012 and 2013, the effective increase in rent per annum was in line with inflation over the period of their lease. Growth in retail rents in the core downtown and city fringe areas was also flat in Q1 compared to a year ago, according to the URA rental index.

But rentals for prime spaces islandwide tracked by Knight Frank, which looked at more comparable units of 350-1,500 sq ft with the best frontage, connectivity, footfall and accessibility, were relatively resilient. Rents for such spaces rose 1.9 per cent in the first quarter from a year ago, driven by higher rents for such spaces in Marina, City Hall and Bugis.

Apart from rents, retail businesses are contending with higher labour costs, tighter foreign workerpolicies and a strong Singapore dollar. The growth of e-commerce is also eating into the sales pie of brick-and- mortar retailers, consultants say.

“We believe that over time, online shopping will be a game changer and unless one is talking about the very high-end products or those where personal service is still deemed irreplaceable, the rest of the retail industry will undergo major structural changes,” Mr Cheong said.

“Only food and beverage may for now survive but there is a limit to how much space a landlord can convert to F&B use,” he added. “Therefore, we believe that it could be online shopping, working through the demand side, rather than increased supply that will ultimately bring down rents.”

Ms Lee of DTZ, however, downplayed the impact from e-commerce. “There will still be consumers who seek the wholesome retail experience of seeing, touching and trying on their goods before they buy,” she said. More online retailers such as blog shops are also setting up physical shops, she added.

http://www.businesstimes.com.sg/premium/top-stories/retail-rents-hold-despite-supply-20140707

In a separate report, Rents have been a sticky issue for retailers, even though consecutive data released lately shows that retail rents have eased and will be capped by the upcoming supply in retail space.

Retailers decry that rents have not factored in their declining sales. This runs contrary to the fact that most lease agreements have a variable rent component based on gross turnover (GTO).

Most landlords here, except for strata-titled owners, charge their tenants a base rent and a percentage of GTO. The rent structures vary across tenants and locations. Some tenants pay both a base rent and a turnover rent of 0.5-2 per cent; others pay by either that formula or purely turnover rent of 10-20 per cent – whichever is higher. There are other permutations in the rent calculations.

Whatever the case, having a turnover rent as part of the total rent computation should have made overall rents more susceptible to the revenues of retailers.

http://www.businesstimes.com.sg/premium/top-stories/why-retail-rents-are-still-sticking-point-20140707