1 Macroeconomic Trends 1.1 Review of Economic Performance in the Past Year According to MTI, Singapore s GDP slowed to 1.3% in 212 from 5.2% in 211. The slower economic growth was mainly due to weakness in the externally-oriented sectors such as manufacturing as well as wholesale and retail trade. Specifically, Singapore s manufacturing sector growth slowed significantly from 7.8% in 211 to.1% in 212 due to the 11.3% year-on-year (YoY) decline in the electronics cluster s output. Over the same period, the wholesale and retail trade sector also contracted by.7% in 212, compared to the 1.6% growth in the preceding year. The latest statistics released by MTI showed Singapore s economy grew by a mere.2% YoY in 1Q 213, compared to the 1.5% growth in 4Q 212. This was due mainly to the 6.8% YoY contraction in manufacturing sector output in 1Q 213, which was steeper compared to the 1.1% YoY decline registered in 4Q 212. Year-on-Year Growth in Gross Domestic Product 16% 14% 12% 1% 8% 6% 4% 2% % -2% -4% Source: Singapore Department of Statistics 1.2 Economic Outlook The outlook of Singapore s economy is cautiously optimistic. Although the global macroeconomic conditions have stabilised in recent months, global economic risks like the fiscal uncertainties in the United States and a potential flareup of the Eurozone s sovereign debt crisis remained. There are also other uncertainties such as the risk of an escalation in regional geopolitical tensions, and a possible global outbreak of respiratory viruses. Nevertheless, MTI expects Singapore s economic growth to improve gradually over the remaining three quarters of 213 as externally-oriented sectors like manufacturing are foreseen to pick up in line with the gradual recovery in external demand. At the same time, growth will be supported by the construction and key services sectors. Against this backdrop, and barring any downside risks, MTI maintained its growth forecast at 1.% to 3.% for 213. 59
2 Recent Government Policies and Measures The following are some of the recent Government policies and measures that will help to regulate the Singapore industrial property market and ensure that the needs of industrialists are better met: Short-Tenure Industrial Sites To enable industrialists to develop their own customised land-based facilities at more affordable prices, the Government will continue to cap the land tenure of industrial sites to be released under its Industrial Government Land Sales (IGLS) programme for the first half of 213 at 3 years. Smaller sites and sites with shorter land tenure of about 22 years, targeted at small and medium enterprises (SMEs) will also be released. However, the reduction of the tenure of new IGLS sites to a maximum of 3 years may lead to a short-term boost in purchase demand for industrial properties with longer land tenures and in turn inflate the value of existing properties with longer or 6-year tenures, as these would now be considered limited in the industrial market. Also, with a 3-year leasehold tenure cap, institutional investors with a medium-term to long-term business horizon are generally not expected to participate in IGLS tenders as the expected return over a shortened time frame is less accretive. New Development Guidelines for Industrial Properties To ensure that developers design and build industrial facilities that cater to the needs of industrialists, the Government introduced development guidelines for industrial properties. All developers/investors of new industrial properties are hence required to adhere to these guidelines: To cater to the needs of SMEs requiring bigger industrial premises, successful bidders of selected industrial sites sold under the IGLS programme from 1 January 213 will be required to build a minimum number of large factory units. The stipulated number and size of these large factory units will be released when a site is launched for tender. With effect from 1 January 212, all land parcels released for sale that are zoned Business 1 (B1) 1 and Business 2 (B2) 2 are subjected to new conditions. These include the prohibition of strata subdivision for selected sites near mass rapid transit stations or as decided by the Government for a period of 1 years from the date of the issue of Temporary Occupation Permit, the imposition of a minimum GFA requirement of 15 square metres (sqm) (approximately 1,615 sq ft) on strata units in multi-user developments as well as stipulating the number of good lifts and loading bays that must be provided in accordance to the maximum permissible GFA of the land parcel for multi-storey industrial developments 3. With effect from 1 January 211, the Project Completion Period was shortened to five years for IGLS sites with a maximum permissible GFA of less than 5, sq m (approximately 538,185 sq ft) and to seven years for IGLS sites with a maximum permissible GFA of equal or more than 5, sq m (approximately 538,185 sq ft). Better Clarity on Allowable Uses in Industrial Properties To provide better clarity on the allowable use of industrial properties and to eradicate unauthorised uses of industrial space, the following guidelines were introduced: With effect from June 212, estate agents and salespersons are expected to advertise the use of the property as approved by the Urban Redevelopment Authority (URA). For example, developments on land zoned B1 or B2 under URA s Master Plan 28 are approved and allowed primarily for industrial use (e.g. manufacturing and warehousing activities). Such industrial properties should not be marketed for business (which may be misinterpreted as offices) or for offices which are not allowed in industrial buildings. As such, developers and investors of industrial properties should also ensure that buyers are aware of the industrial allowable uses and that space occupants are authorised users under the prevailing industrial use definitions. Cooling Measures for the Industrial Property Market: Seller s Stamp Duty To rein in short-term speculative activity, the Government introduced a Seller s Stamp Duty (SSD) of 15%, 1% and 5% on industrial properties sold within one, two and three years of purchase on or after 12 January 213, respectively. This measure is not expected to affect institutional investors of properties as these investors such as REITs typically have a longer investment horizon. Meanwhile, while it will take some time for the effects of the SSD to filter through the industrial property market, the strata-titled industrial sales market is expected to experience an immediate knee-jerk reaction as both buyers and sellers step back to assess the impact. However, the strata-titled industrial sales market is expected to see continued support from end-users and investors with a longer investment horizon after the initial kneejerk reaction. The industrial property market is expected to be more stable in 213 with minimal fluctuations in industrial property prices. Change in Mode of Payment for Third Party Facility Assignment of JTC Lease With effect from 1 January 213, the payment scheme for new assignment contracts under JTC leased sites involving third party facility providers has been revised to upfront land premium. As such, the option of paying land rental now remains open only to buyers who are industrialists. Institutional investors such as REITs and property funds buying industrial building from sellers on JTC-leased sites will now need to incur an upfront land premium for the remaining part of the lease term on top of the acquisition cost for the property. Reduction of Minimum GFA Requirement for New Anchor Tenant Applications of Third Party Facility Providers With effect from 5 April 213, JTC has relaxed its sub-letting rule for third-party facility providers. While lessees of JTC property wishing to sub-let their GFA to other tenants would have to sub-let at least 5% of the building s GFA to one or more JTC-approved anchor tenants, the minimum GFA for an anchor tenant has been halved to 1,5 sq m (approximately 16,146 sq ft). The change is expected to encourage more flexibility and space efficiency for industrial developers and landlords. For instance, REITs will have the opportunity to expand their tenant base and secure higher rents when the space is up for renewal. Prospective anchor tenants with smaller space requirements too, stand to benefit from the rule change. 3 Multi-User Factory Market Overview 3.1 Existing and Potential Supply As of 4Q 212, the stock of completed multi-user factory space in Singapore stood at 97.1 million sq ft, up 4.3% YoY. This followed the net addition of 4. million sq ft of new multi-user factory space in 212. The net addition of another approximate 269, sq ft of multi-user factory space in 1Q 213 raised the total multi-user factory stock to 97.3 million sq ft by the end of March 213. Based on available information as of 1Q 213, an estimated 19.3 million sq ft 4 (net floor area) of new multi-user factory space is expected to be completed from 2Q 213 to 216. Including the 269, sq ft completed in 1Q 213, this translates to an average supply of approximately 4.9 million sq ft per annum for the four years from 213 to 216, which is 172.2% higher than the annual average net new supply of 1.8 million sq ft, and 14.2% above the annual average net new demand of 2.4 million sq ft for the period from 23 to 212. Under the guidelines on the non-exclusive and limited use of industrial premises for religious activities, announced on 12 June 212, religious activities in industrial premises are limited to only certain days in a week and occupy only part of the industrial premises within the ancillary use quantum. Additionally, existing religious organisations that are using factory units for religious uses on an exclusive basis will be granted a three-year grace period with effect from 12 June 212. As such, landlords/investors of industrial properties need to ensure that these guidelines are adhered to. 1 Business 1 (B1): These are areas used or intended to be used mainly for clean industry, light industry, warehouse, public utilities and telecommunication uses and other public installations for which the relevant authority does not impose a nuisance buffer greater than 5 metres. Certain general industrial uses that meet the nuisance buffer requirements of not more than 5 metres imposed by the relevant authority may be allowed in the B1 zones, subject to evaluation by the relevant authority and the competent authority. 2 Business 2 (B2): These are areas used or intended to be used for clean industry, light industry, general industry, warehouse, public utilities and telecommunication uses and other public installations. Special industries such as manufacture of industrial machinery, shipbuilding and repairing, may be allowed in selected areas subject to evaluation by the competent authority. 3 This applies to all high-rise industrial developments, regardless of it being a single or multi-user development. 6 4 Potential supply includes space under construction and planned but the actual level of new supply could increase / decrease due to changes in the status of planned projects. 61
Net New and Potential Supply of Multi-User Factory Space (as of 1Q 213) Net Floor Area ( sq ft) 8, 7, 6, 5, 4, 3, 3.3 Rents of Multi-User Factory Space According to URA, the monthly 25th percentile 5 rent of multi-user factory space rose by 3.7% YoY to S$1.7 per sq ft as of 4Q 212, on the back of healthy occupancies. However, the rate of growth has slowed from the 9.3% gain seen in 211, in line with the moderation in demand. Similarly, the monthly median and 75th percentile rents registered slower annual growth of 5.3% and 6.4% respectively, to S$2. per sq ft and S$2.5 per sq ft as of 4Q 212. Comparatively, the median rent gained 9.2% while the 75th percentile rent rose by 6.8% in 211. URA s records for 1Q 213 showed rents exhibiting greater stability compared to the previous quarter. Although the monthly 25th percentile rent eased by 1.8% QoQ to S$1.67 per sq ft, reversing 4Q 212 s 3.% rise, the monthly median and 75th percentile rents stayed constant at S$2. per sq ft and S$2.5 per sq ft, respectively. In comparison, the monthly median rent rose by 1.5% QoQ in 4Q 212 while the 75th percentile rent was stable during the same quarter. - - 23 24 25 26 27 28 29 21 211 212 213F 214F 215F 216F Completed Uncompleted F: Forecast Rents of Multi-User Factory Space (as of 1Q 213) (S$ per sq ft per month) $3. $2.5 3.2 Demand and Occupancy Although total net new demand of multi-user factory space fell by about 8.% YoY to 3.2 million sq ft in 212, it is still about 68.4% above the annual average net new demand of 1.9 million sq ft for the period from 22 to 211. As net new supply exceeded net new demand in 212, this exerted some downward pressure on the average occupancy rate which slipped by.5-percentage point YoY, to 9.3% as of 4Q 212. URA s data showed that the average occupancy rate of multi-user factory space inched up to 9.5% as of 1Q 213. This came on the back of a 4.% quarter-on-quarter (QoQ) increase in net new demand to approximately 377, sq ft, which was higher than the net new supply of about 269, sq ft during the quarter. $2. $1.5 $1. $.5 $. 25th Percentile Median 75th Percentile Net Demand and Occupancy Rate of Multi-User Factory Space (as of 1Q 213) Net Floor Area ( sq ft) Occupancy Rate (%) 4, 94% 3,5 92% 9% 3, 88% 2,5 86% 84% 1,5 82% 8% 5 78% 3.4 Outlook Going forward, the prevailing macroeconomic challenges, the substantial amount of space in the pipeline, as well as the Government s clamp down on illegal industrial space users and stricter enforcement of its guidelines on the legitimate use of industrial space could result in the average occupancy rate of multi-user factory space softening in 213. And with tenants foreseen to remain cost sensitive due to the overall rise in business operating cost, this could place some downward pressure on islandwide rents of conventional multi-user factory space in 213. 76% Net New Demand Occupancy Rate 5 As the stock of multi-user factories comprises developments with varying building specifications to which rents are sensitive, the 25th percentile rents from URA s Real Estate Information System would be reflective of conventional flatted factories with basic specifications. 62 63
4 Stack-Up 6 Factory Market Overview 4.1 Existing and Potential Supply According to Colliers International s research, Singapore s total estimated stock of stack-up factory space remained stable at about 6. million sq ft as of 1Q 213. The last known project addition was the completion of West Park BizCentral at Tanjong Kling in December 211. Going forward, the stock of stack-up factory space is expected to remain stable as there are no known new stack-up factory projects in the supply pipeline 7, based on available information as of 1Q 213. 4.2 Demand and Occupancy Demand for stack-up factory space was healthy in 212. According to Colliers International s estimates, the average occupancy rate of stack-up factory space in Singapore rose from 82.2% as of 4Q 211 to 96.3% as of 4Q 212. This was due to the 26.5% increase in net new demand for stack-up factory space from about 279, sq ft in 211 to about 855, sq ft in 212, as supply remained stable. 64 Supported by the net absorption of another approximate 3 sq ft of space amid stable supply, the average occupancy rate of stack-up factory space inched up to approximately 96.6% as of 1Q 213. 4.3 Rents of Stack-Up Factory Space Monthly gross rents of islandwide stack-up factory space are estimated to range from S$1.7 per sq ft to S$2.2 per sq ft as of 4Q 212, depending on the location, age, as well as design and functional specifications of the stack-up factory buildings. This rental range translates to an average monthly gross rent of S$1.64 per sq ft as of 4Q 212. While the average rent as of 4Q 212 was 2.5% higher YoY, the pace of growth has moderated from the 16.4% recorded in 211. In 1Q 213, the monthly gross rents for stack-up factory in Singapore ranged from S$1.9 per sq ft to S$2.2 per sq ft. Although the average monthly gross rent of stack-up factory space rose marginally by another.6% QoQ to S$1.65 per sq ft as of 1Q 213, the rate of rental growth was limited to some extent by competition from new ramp-up industrial facilities. 4.4 Outlook Taking into account the relative scarcity of land-based industrial facilities, the lack of new upcoming stack-up developments, and the expected competition from ramp-up factories, the average occupancy rate of stack-up factory space is expected to remain relatively stable in 213. Consequently, rents for stack-up factory premises are forecast to rise at a moderated pace in 213, supported by modest new take-up and lease renewals. 5 Single-User 8 Factory Market Overview 5.1 Existing and Potential Supply Singapore s islandwide stock of single-user factory space rose 1.4% YoY to 231.3 million sq ft as of 4Q 212, following the net addition of some 3.2 million sq ft in 212. The completion of 94, sq ft in 1Q 213 raised the overall stock of single-user factory space to 232.2 million sq ft as of the end of March 213. Based on URA s statistics and Colliers International s estimates as of 1Q 213, an estimated 19. million sq ft 9 (net floor area) of new single-user factory space is expected to be completed from 2Q 213 to 216. Including the 94, sq ft completed in 1Q 213, this translates to an average supply of around 5. million sq ft per annum, which is 28.2% and 8.7% higher than the respective annual average net new supply and net new demand of 3.9 million sq ft and 4.6 million sq ft for the 1 years from 23 to 212. 6 This is a type of multi-user factory with ramp access. 7 Potential supply includes space under construction and planned but the actual level of new supply could change due to changes in the status of planned projects. 8 Single-user factories are occupied predominantly by a single party and used for purposes solely related to that occupier. These are typically land-based properties comprising a mix of standard factories or purpose-built facilities. Land-based properties are often the preferred building forms for firms engaged in the manufacturing or storage of bulky goods. The single-user factory market may be used as a benchmark for MIT s portfolio of Light Industrial Buildings. 9 Potential supply includes space under construction and planned but the actual level of new supply could increase / decrease due to changes in the status of planned projects. Net New and Potential Supply of Single-User Factory Space (as of 1Q 213) Net Floor Area ( sq ft) 1, 9, 8, 7, 6, 5, 4, 3, 23 24 25 26 27 28 29 21 211 212 213F 214F 215F 216F Completed Uncompleted F: Forecast 5.2 Demand and Occupancy Compared to 211, the quantum of space physically occupied by firms rose by 29.3% to 3.4 million sq ft in 212. However, total net new demand in 212 is 19.% lower than the annual net new demand of around 4.2 million sq ft for the period from 22 to 211. With net new demand surpassing net new supply, the average occupancy rate of single-user factory space crept up to 95.1% as of 4Q 212, from 94.9% in the preceding year. However, the average occupancy rate eased marginally to a still healthy 94.8% as of 1Q 213 as the net absorption of single-user factory space which slowed to around 28, sq ft, from last quarter s 1.9 million sq ft, was substantially lower than the net addition of about 94, sq ft during the quarter ended March 213. Net New Demand and Occupancy Rate of Single-User Factory Space (as of 1Q 213) Net Floor Area ( sq ft) Occupancy Rate (%) 9, 8, 7, 6, 5, 4, 3, - - Net New Demand Occupancy Rate 1% 99% 98% 97% 96% 95% 94% 93% 92% 91% 9% 89% 88% 87% 65
5.3 Rents of Single-User Factory Space According to URA, rents of single-user factory space continued to rise albeit at a slower pace in 212 on the back of healthy demand, which is similar to rents of multi-user factory space. Specifically, the rate of increase in the average monthly gross median rent of single-user factories moderated to 2.3% YoY in 212, from 18.8% YoY in 211. Likewise, the monthly 25th and 75th 1 percentile rents registered slower annual growth of 3.8% and.7% respectively in 212, compared to 7.4% and 2.4% in 211. Following the latest increase, the 25th percentile, median and 75th percentile rents of single-user factory premises stood at S$1.65 per sq ft, S$2.2 per sq ft and S$3.9 per sq ft, respectively, as of 4Q 212. Rents continued to rise in 1Q 213 on the back of healthy occupancy, with the monthly 25th percentile and median rents registering quarterly growths of 1.8% and 3.6%, to S$1.68 per sq ft and S$2.28 per sq ft, respectively. However, the 75th percentile rent lost 2.9% QoQ to S$3. per sq ft over the same period. 6 Business Park Market Overview 6.1 Existing and Potential Supply URA s data as of 4Q 212 showed the islandwide stock of business park space amounted to about 16.7 million sq ft, which accounted for 3.9% of the existing islandwide supply of industrial space. Net new supply of business park space amounted to 1.4 million sq ft in 212, which is more than 1.5 times above the annual average supply of about 931,675 sq ft from 23 to 211, and 7.3 times above the 194, sq ft added in 211. The net withdrawal of about 97, sq ft in the first three months of 213 led to a slight decline in the total stock of business park space to about 16.6 million sq ft as of 1Q 213. Based on latest available information from the URA and Colliers International s estimates as of 1Q 213, approximately 5.3 million sq ft 11 (net floor area) of new business park space are expected to be completed from 2Q 213 to 216. Taking into consideration the 97, sq ft withdrawn in 1Q 213, this works out to an annual average supply of about 1.3 million sq ft from 23 to 216. This is about 33.9% higher than the annual average supply of 98,591 sq ft for the period from 23 to 212. As at 1Q 213, it is estimated that more than 5% of the upcoming supply had been pre-committed ahead of building completions. Median Rents of Single-User Factory Space (as of 1Q 213) (S$ per sq ft per month) $3.5 $3. $2.5 Net New and Potential Supply of Business Park Space (as of 1Q 213) Net Floor Area ( sq ft) 2,5 $2. $1.5 $1. 1,5 $.5 5 $. 25th Percentile Median 75th Percentile 23 24 25 26 27 28 29 21 211 212 213F 214F 215F 216F Completed Upcoming F: Forecast 5.4 Outlook As single-user factories are predominantly built for owner-occupation purposes, they are expected to weather downside risks better than multi-user factories. And with Singapore remaining an attractive investment destination for regional headquarters and a springboard into the region, this will help to support the take-up of single-user factory space. Although the islandwide average occupancy rate of single-user factory space may ease slightly in 213 due to supply pressure, rents of single-user factory premises are expected to experience some upside potential during the year. 6.2 Demand and Occupancy Demand for business park space stayed healthy in 212, with URA s figures reflecting a net absorption of about 87 sq ft, which is 7.3% higher than the annual average net absorption of about 813, sq ft from 22 to 211. However, overall net absorption of business park space in 212 is about 3.2% lower than the 1.2 million sq ft that was physically occupied in 211. With net new supply outpacing net new demand in 212, the average occupancy rate eased from 82.8% as of 4Q 211 to 8.9% as of 4Q 212. However, due to the net withdrawal of about 97, sq ft and the continued take-up of some 237, sq ft of space in the first three months of 213, the average occupancy rate improved to 82.8% as of 1Q 213. 1 The median and 75th percentile rents would be reflective of those commanded by high-tech and high-specifications factories, respectively. 66 11 Potential supply includes space under construction and planned but the actual level of new supply could change due to changes in the status of planned projects. 67
Net New Demand and Occupancy Rate of Business Park Space (as of 1Q 213) Net Floor Area ( sq ft) Occupancy Rate (%) 1% 9% 1,5 8% 7% 6% 5% 5 4% 3% 2% 1% -5 % Net New Demand Occupancy Rate 6.4 Outlook Taking into consideration the potential supply of new business park space as of 1Q 213, the progressive shifting in of tenants in both completed and upcoming single-user and multi-user business park developments as well as the prevailing global and local economic situation, the average annual occupancy rate of business park space is expected to ease slightly in 213. However, rents could rise on the back of higher rental expectations from landlords. This is due to the lack of new upcoming multi-user business park developments. Moreover, landlords who carried out asset enhancement works at some of the existing buildings are also expected to raise their rental expectations for these buildings. As such, overall business park rents are forecast to register growth of up to 5% in 213. 7 Limiting Conditions The content of this report is for information only and should not be relied upon as a substitute for professional advice, which should be sought from Colliers International prior to acting in reliance upon any such information. The opinions, estimates and information given herein or otherwise in relation hereto are made by Colliers International and affiliated companies in their best judgement, in the utmost good faith and are as far as possible based on data or sources which they believe to be reliable in the context hereto. Notwithstanding this, Colliers International disclaims any liability in respect of any claim that may arise from any errors or omissions, or from providing such advice, opinion, judgement or information. All rights are reserved. No part of this report may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of Colliers International. 6.3 Rents of Business Park Space Based on actual rental transaction records from URA, the monthly median rent for business park space on an islandwide basis rose from S$3.9 per sq ft as of 2Q 212 to S$4.1 per sq ft in 3Q 212. However, due to the increase in vacant stock following the completion of new projects, the median rent eased to S$3.81 per sq ft per month as of 4Q 212, down 2.3% YoY. On the back of higher rental expectations from landlords and the reduction in vacant space, the monthly median rent of business park space gained 6.3% QoQ to S$4.5 per sq ft as of 1Q 213. Median Rents of Business Park Space (as of 1Q 213) (S$ per sq ft per month) $5.5 $5. $4.5 $4. $3.5 $3. $2.5 $2. $1.5 $1. 25th Percentile Median 75th Percentile 68 69