INDUSTRIAL properties have been in high demand this year, with a total of S$4 billion in big-ticket transactions (of at least S$10 million each) year to date (with the latest transaction dated Nov 19), based on Cushman & Wakefield Research’s analysis.
“The YTD tally is almost double 2020’s full-year industrial property investment sales value of S$2.1 billion, reflecting robust demand from investors and industrialists,” said C&W’s Singapore research head Wong Xian Yang.
“Investors are betting on the outperformance of industrial properties, in particular new economy assets such as business parks, logistics facilities and high-specification industrial buildings,” he added.
C&W’s executive director of logistics and industrial, Brenda Ong, has observed strong occupier demand this year in sectors such as electronics, semiconductors and e-commerce.
“Amid the global shortage of chips, semiconductor suppliers have been on expansion mode to meet demand,” she added.
The YTD tally of investment sales for industrial property is, however, 32 per cent lower than the S$5.9 billion in 2019. In that year, the transaction value was bolstered by CapitaLand’s acquisition of Ascendas-Singbridge, which included about S$2 billion of industrial properties here; and Mapletree Commercial Trust’s S$1.55 billion acquisition of Mapletree Business City (Phase 2), said Wong.
Said Ong: “There’s still a lot of interest in industrial property but assets with good specifications are not readily available in the market – as owners tend to hold on to such properties for own use on a long-term basis, while those who bought the asset for investment are holding due to the good rental income.”
Among the transactions captured in the URA Realis caveats database recently is the S$40.9 million sale by UTAC Manufacturing Services Singapore of one of its buildings at 22 Ang Mo Kio Industrial Park 2 to KLA-Tencor. The 5-storey building, with 178,500 sq ft gross floor area (GFA), is on a 121,415 sq ft site with 18 years’ balance lease.
The building, which UTAC has used for its test and assembly centre, includes cleanroom facilities. The sale is subject to JTC’s approval for the assignment of the balance term of the site’s lease.
C&W is understood to have brokered the transaction but it declined to comment.
UTAC, which provides assembly and test services for semiconductor chips, continues to own the remaining 4 buildings on the neighbouring sites.
Industry observers say that besides overall scarcity of investment-grade assets available for sale, an additional challenge with transacting industrial properties that are on sites with leases issued by JTC is the agency’s restrictions.
Citing an example, Ong said: “Potential buyers that are not occupiers, such as property funds and Reits, are allowed to buy buildings on JTC-leased sites, only if there is a leaseback arrangement with the seller or if they have secured an anchor tenant. Investors cannot buy a vacant building – including for redevelopment – without first securing an anchor tenant.
“Furthermore, buyers are subject to an assignment or sale prohibition period of at least 5 years.”
An institutional real estate investor said: “The idea is to prevent speculation in industrial property. The intention is good but it upsets the free market.”
However, industrial properties developed on Government Land Sale sites do not have such restrictions and tend to fetch higher prices, according to observers.
An example is StarHub Green in Ubi Avenue 1 near MacPherson MRT interchange station, which fetched S$300 million or S$740 psf on net lettable area of 405,386 sq ft. The deal, completed earlier this year, reflects net yield of just under 5 per cent. StarHub Green is on a site with about 36 years’ balance lease. It was sold by Basil Property Trust, a private property fund managed by Singapore-based AEP Investment Management, to Hong Kong-based private equity firm PAG. The deal is said to have been brokered by Colliers International.
Ong of Cushman is sanguine about demand for industrial property in 2022. “However, we’ll continue to see limited supply available for sale. JTC restrictions also remain a potential hurdle for higher sales activity.”
The buyer-seller price gap may also widen. Said Ong: “Given the strong economic dynamics underpinning prospects for industrial property, potential sellers’ expectation has increased and many have adopted a passive stance in the market. Owners of properties that are performing well in terms of rental income may not be prepared to sell these assets.
“On the other hand, while market liquidity remains strong and investors are looking to buy, they are cognisant of heightened price levels and concerned about overpaying.”
Net property yields for industrial property – which have compressed by about 25-50 basis points this year, especially for good-quality logistics properties and business parks – may potentially fall further in 2022, said Ong.