Patchy demand for industrial property in Q2

Singapore’s business parks sector registered a resilient performance in Q2 2016 even as effects from the weak overall business and property sentiment began to take a toll on the market, according to a CBRE report.
In April, Mapletree Business City II (MBCII) obtained TOP with a net lettable area of around 1.12 million sq ft, while net absorption stood at 368,960 sq ft during the quarter.
“The inclusion of MBC II into CBRE Research’s basket led islandwide vacancy to rise to 13.8 percent from 10.6 percent in Q1 2016,” said the report.
With large leasing deals scarcer this year, transactional and enquiry activity were primarily supported by smaller and mid-sized space requirements from the consumer products, technology and biomedical sectors. Most of the demand were focused on newly completed projects like MBC II and Ascent.
Nonetheless, there are still some deals in the pipeline from the banking and technology sectors looking to expand in the rest of island submarket.
The addition of MBC II saw city fringe rent climb by 1.9 percent quarter-on-quarter in Q2 2016 while rest of island business parks rent held firm at S$3.70 per sq ft per month.
Nevertheless, landlords have started “revising their rental expectations downwards for some of the older buildings in the decentralised areas in a bid to shore up occupancy.”
Looking ahead, CBRE expects islandwide occupancy to gradually improve as softer demand is balanced out by the lack of new multi-user completions.
“Newer developments such as Ascent and MBCII should gradually secure more tenants although this could come at the expense of occupancy in Rest of Island business parks which will face challenges in competing for a limited pool of occupiers,” it said.
“On the rental side, landlords are expected to exercise caution given the narrowing- premium between office and business parks rents. Their focus will be on strengthening- occupancy for the rest of 2016,” it added.
Meanwhile, demand for industrial properties remained patchy in Q2 2016 with majority of the leasing interest coming from the high-tech manufacturing, biomedical manufacturing and logistics industries which require premises of higher specifications.
Said facilities, however, remain limited in supply considering that they are well-sought after by the aforementioned industries.
On the contrary, landlords of multi-tenanted conventional premises continue to struggle to find tenants. To boost occupancy levels, these landlords have been flexible in providing rental incentives and accommodating tenant requests.
Third party facility providers of industrial facilities on JTC land also struggled to find occupiers who can fulfil the qualifying anchor sub-tenant criteria.
Landlords also remain to discern the quality of occupiers they engage in sale-and-leaseback structures as there have precedents of tenants, like those in the oil and gas sector, being in arrears of rent, the report said.
According to CBRE, the stringent regulations of JTC will continue to pose challenges for end-user industrialists and third-party facility providers.
“Bound by the qualifying anchor sub-tenant criteria, third-party facility providers may be motivated to accept any tenant who qualifies as an anchor sub-tenant. However, they will need to weigh the importance of this against the tenant’s financial standing,” it said.
Restricted by the 30 percent subletting rule, more end-user industrialists are expected to turn to the private industrial market, which remains limited in supply.

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