Strata industrial units looking to fill the void
Lower-than-expected rental yields put off potential buyers

A Straits Times visit to Oxley Bizhub 1 found at least 20 units for rent or sale among the 45 units on the ground floor of one block. Buyers were told they would be able to get rents of about $3 per sq ft per month. But it is believed that most are struggling to even get $1.80 psf per month. -- ST PHOTO: DANIEL NEO

AN OVER-SUPPLY of strata industrial units is hitting sales and sending rents down. The pain is especially acute among projects completed since the second half of last year as these were bought around two to three years earlier, when the market was heady, say experts.

"They were marketed at very high rental expectations... Property agents tend to tell buyers current rents without anticipating what was going to happen a year or two down the road," an industry veteran said.

At Oxley Bizhub 1, for example, buyers were told they would be able to get rents of about $3 per sq ft per month. But word on the street is that most are struggling to even get $1.80 psf per month in rent, and most transacted rents are below $2 psf.

This translates into rental yield of about 3.5 to 4.5 per cent, 20 to 30 per cent lower than the 5 to 7 per cent yield buyers were expecting.

A recent Straits Times visit to Oxley Bizhub 1, which was completed in 2013, found there were at least 20 units for rent or sale among the 45 units on the ground floor of one block.

At Synergy@KB in Kaki Bukit, which was completed last year and is over 80 per cent sold, occupants estimate the project is 40 per cent full.

Estimated occupancy in most of the new projects is 50 to 60 per cent, with Business 2 (B2) projects faring better than Business 1 (B1) projects, experts said. B1 developments are suitable for lighter industries, compared with B2 ones.

The vacancy rate of multiple- user factory space in the private sector - including strata factories for sale - was 12.5 per cent in the first quarter, representing about 13.38 million sq ft of space.

A further 4.55 million sq ft of multiple-user factory space is expected to be completed this year. Of this, slightly over half is expected to be strata-titled and put on sale, said R'ST Research director Ong Kah Seng. This includes Apex@Henderson, CT Hub 2 in Kallang, Eco-Tech@Sunview in Pioneer, Mapex in Jalan Pemimpin as well as Tag A and Tagore 8 in Tagore.

"Vacancy rates (for such space) are likely to trend upwards this year, possibly hitting about 15.5 per cent at the end of the year," Mr Ong said.

The fight for tenants is also apparent at older developments. At Tuas Lot, which was completed in 2010, asking rents have dropped from around $1.35 psf per month before Chinese New Year to about $1 psf per month.

Sales are slow as well. A factory unit at UB. One, completed in 2011, has taken about six months of advertising to sell, an agent said. The owner also trimmed the asking price by $50 per sq ft.

Transaction activity in the strata-titled industrial sales segment is likely to remain muted this year, "as long as buyers and sellers continue to engage in a waiting game to see which party will first give way on their price expectation", said Mr Tan Boon Leong, executive director of industrial services at Colliers International.

"But faced with a triple whammy of weak buying demand, rising interest rates and softening rents, sellers with a weaker holding power are more likely to relent on their expected prices in the coming quarters."

The Straits Times / Money Published on Saturday, 9 May 2015

By Rennie Whang wrennie@sph.com.sg

Background story
SPACE INVASION

Estimated occupancy in most of the new projects is 50 to 60 per cent, with Business 2 (B2) projects faring better than Business 1 (B1) projects, experts said.

B1 developments are suitable for lighter industries, compared with B2 ones. The vacancy rate of multiple-user factory space in the private sector - including strata factories for sale - was 12.5 per cent in the first quarter, representing about 13.38 million sq ft of space.

Strata industrial units looking to fill the void