Sluggish Growth Reported in Asia Pacific Industrial Property Markets

Edited: Jennifer Brenner
Source: Colliers International

Colliers International’s latest bi-annual global industrial real estate report, which tracked industrial property performance across 159 cities, revealed that almost all industrial markets around the world were hit hard by the global downturn and consequently, posted weaker results in 1H 2009.

Prime Warehouse Rent (industrial space of 20,000 sq ft or more)

In the global ranking for the most expensive prime warehouse rent, Singapore, which fetched an average rent of US$12.38 per sq ft per year, slid six rungs down – out of the global top-10 list – to the 14th position in 1H 2009.

Tokyo and London (Heathrow) retained their top two spots, with an average rent of US$22.18 per sq ft per year and US$20.64 per sq ft per year, respectively. Sao Paolo, with an average rent of US$16.02 per sq ft per year, displaced Oslo as the third most expensive city in 1H 2009.

Although Asia Pacific remained the most robust region compared to the other regions, it still registered a substantial drop in rents in almost every country – with Perth, Singapore and Delhi registering double-digit declines in local currencies at 18.37 per cent, 14.77 per cent and 13.33 per cent, respectively.

On the Asia Pacific scale, Singapore dropped to the fourth position in 1H 2009, from the third in 2H 2008. Tokyo, Hong Kong and Seoul led in the top three spots, respectively.

Bulk Warehouse Rent (industrial space of 100,000 sq ft or more)

Singapore is in the 13th position, fetching an average rent of US$9.90 per sq ft per year.

The top three positions were taken by Tokyo (US$22.18 per sq ft per year), London, Heathrow (US$20.64 per sq ft per year) and Oslo (US$15.12 per sq ft per year).

On a regional comparison, Singapore is fourth, lagging behind Tokyo, Hong Kong and Seoul.

With the global economy showing signs of life and global trade on the upswing, most of the warehouse markets in Asia Pacific are expected to firm up in the second half of 2009.

Ms Tay Huey Ying, Director of Research and Advisory at Colliers International, says, “For Singapore, the improving confidence in the economy and the better-than-expected performance from the manufacturing sector have facilitated a moderate rental fall and stabilized capital values in 3Q 2009.”

The rents for prime flatted warehouse space in Singapore fell 3.6 per cent in 3Q 2009 to average at S$1.89 per sq ft per month for ground-floor space, and stayed flat at S$1.50 per sq ft per month for upper floor space. The percentage decline is much smaller than the average quarterly drop of 10.6 per cent for ground floor space and 7.7 per cent for upper floor space seen in the past six months.

Meanwhile, the average monthly gross rents of prime flatted ground-floor factory space slid a marginal 2.6 per cent to S$1.87 per sq ft, while upper floor factory rents remained unchanged from last quarter’s rate of S$1.57 per sq ft per month. These are significant improvements from the past six months, during which rents decreased by a quarterly average of 11.7 per cent and 6.9 per cent for ground and upper floor space, respectively.

The decline in rents for hi-specs space, which accelerated to 10.5 per cent in 2Q 2009, also slowed to 5.8 per cent in 3Q 2009 to S$3.22 per sq ft per month.

Ms Tay comments, “The buying euphoria in the residential market has spilled over to the industrial market in 3Q 2009. Sale transactions of strata industrial space in 3Q 2009 surged more than 50 per cent from the volume recorded in 2Q 2009 and has even exceeded the level last seen in 3Q 2008, before Lehman Brothers collapsed on 16 September 2008.”

With renewed buying interest in the strata industrial space market, average capital values began to inch up in 4Q 2008. The average capital values of prime freehold upper floor factory and warehouse space increased slightly by 1.1 per cent and 1.8 per cent to S$376 per sq ft and S$344 per sq ft, respectively, in end 3Q 2009, while average capital values for prime freehold ground floor factory and warehouse space stayed flat.

Ms Tay concludes, “Despite signs of firming occupancy costs in Singapore, given that industrialists are largely still cautious about expanding in the short term, and coupled with the large impending supply, industrial rents are foreseen to remain soft in 4Q 2009.”