Industrial prices and rentals continued their decline for a seventh consecutive quarter in the last three months of 2016. Prices fell a further three per cent in the fourth quarter, and rentals by 0.5 per cent, said JTC on Thursday.

For the year, industrial prices retreated 9.1 per cent, and rentals, 6.8 per cent. This was steeper than the 1.7 per cent decline in prices and the 2.1 per cent in rentals in 2015.

But occupancy levels bucked the trend and rose 0.4 percentage point to 89.5 per cent in the quarter; compared to a year ago, they were still down 1.1 percentage point.

The uptick in the occupancy rate could have come from more industrialists moving into their new premises; as new supply had entered the market in the last few quarters.

However, the increase in occupancy in Q4 2016 may not be sustainable as there is still more completed space expected in 2017. Occupancy rate may drop again in 2017.

JTC has been ramping up supply to arrest the surging of prices and rentals in recent years. Last year, it raised the total stock of industrial space by 1.8 million square metres (sq m). This year, about 2.4 million sq m of industrial space, which includes 548,000 sq m of multiple-user factory space, is estimated to come onstream.

The state industrial landlord said this is higher than the average annual supply of around 1.8 million sq m and demand of 1.3 million sq m of the past three years.

Terence Seow, assistant chief executive for corporate, policy and planning group at JTC, said: “The downward price and rental movements were expected in light of the seller’s stamp duty imposed in 2013 to reduce speculation, more supply coming into the market as a result of the large number of industrial government land sales sites in 2010 to 2014 and the introduction of new developments by JTC, as well as the slowdown in the economy.

“Such a price and rental decline will lower the business costs for industrialists, in particular SMEs (small and medium-sized enterprises).”

Consultants offered other reasons for the fall in prices and rentals: it could be a result of there being more shorter-tenure strata-titled industrial properties in the market.

Such properties are cheaper, but harder to obtain financing for. Their asset values depreciate more quickly, which means reselling them is more difficult, making them less attractive to investors.

Strata-titled or multi-user properties are increasingly of shorter tenure, but make up only about a fifth of the total industrial market. Single-user factories, which make up more than half the island’s supply, have also met with weaker demand due to JTC’s stringent requirements for the tenants’ value-added and productivity measures.

Analysts expect overall industrial prices to fall by up to 12 per cent this year, and rents to fall by up to 10 per cent by year’s end.

But the situation could improve next year; the projected supply of factory space is expected to fall to a more manageable 6.8 million sq ft in 2018.

Adapted from: The Business Times, 27 January 2017