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Two-tier Business Park Market to Continue

Geraldine Cheong • 20/10/2020

The two-tier business park market looks set to continue as rents for business parks in the city fringe are projected to increase. Business parks with Grade A office specifications are being sought out by firms seeking to cut their real estate costs by relocating to qualifying business park spaces in the city fringe. Rents of business parks in the city fringe stood at $5.91 psf/month in Q3 2020, up 0.2 per cent from the last quarter, and 2.4 per cent from a year ago. Science Park facilities, which houses a large cluster of pharmaceutical and biomedical firms, are expected to see rents increase slightly because of the growth in demand for products and R&D in the healthcare sector. However, rents for business parks in the outlying areas will decline due to the older stock in these areas.

Brenda Ong, Executive Director and Head of Logistics & Industrial said “Biomedical manufacturers and the related R&D players are looking to locate their facilities in Singapore or Southeast Asia as the threat of global supply chain disruptions continues to loom. Semi-conductor players and all other related industries supporting 5G networks are poised for growth”.

The logistics sector continues to see expansion. German logistics firm DB Schenker recently opened its 550,000 sf warehouse at Airport Logistics Park. The firm invested $163 million in the property, which increased its number of warehouses in Singapore to 13 and its total warehouse footprint to 2.8 million sf. Automation technologies used in the facility will result in a 40% speed increase in the handling of air freight imports and exports, which will enable DB Schenker to handle high order volumes. In addition, the facility will have sustainable features such as photo-voltaic solar panels which will reduce energy use by around 35 per cent.

Kajima Corporation started construction of its first overseas innovation centre at Changi Business Park. Kajima will be investing $100 million in the property, which will span around 141,000 sf of business park space and R&D lab space. Upon its completion in 2023, Kajima Global Hub will serve as the firm’s regional headquarters and conduct research and development into advanced building technologies for the construction industry.

Rents in the prime logistics segment are expected to increase due to the strong preference for rampup facilities, while those of conventional warehouses could remain flat.

In the third quarter, prime logistics rents rose by 1.5 per cent over the previous quarter. Factory rents are likely to moderate as global demand has yet to recover, while high-tech rents may remain stable due to the growth of the electronics sector.

Christine Li, Head of Research, Singapore and Southeast Asia said “The recession has led to increased demand for business parks in the city fringe as corporate occupiers seek out more affordable real estate to mitigate costs. Another factor towards the shift to business parks is the number of corporates which have a large proportion of their employees working from home, resulting in a lower need for CBD office space. The movement towards business parks with Grade A specifications along with the continued moderation of Grade A CBD rents will further narrow the rental gap between CBD office and city fringe business park space over the next few quarters. This trend is only expected to reverse after Grade A CBD rents decline by a projected 20 per cent in 2021, making Grade A CBD offices affordable for occupiers again.

Ms Li added that “Both city fringe business parks and prime logistics defied gravity to advance in terms of rental rates and emerged as bright spots for the industrial sector. It is proving to be the most resilient sector of the market in the worst recession on record, a deviation from the past crises including the Global Financial Crisis, the Asian Financial Crisis and the dotcom bubble burst.

Investment in Industrial Assets Lags Amidst Broader Challenges

Despite the hype in investor interest in logistics assets, the number of inked deals is still lagging against the broader economic challenges. Industrial assets recorded $446.5 million in the third quarter, down 39 per cent from the previous quarter and down 89 per cent from a year ago.

Brenda Ong said “Long term players in the logistics sector are reluctant to sell their assets; unless the investor is a fund with a fixed fund life, there is no impetus for those with a long-term horizon to put their assets on the market, particularly when quality assets are few and far between. That, and the fact that investors are bound by sale moratoriums as regulated by the authorities, are reasons for the low levels of investment activity”.

Nevertheless, the quarter recorded some activity in the logistics sector as demand for storage space has increased significantly in recent times due to the government-led stockpiling of essential supplies to guard against future supply disruptions. AIMS Apac REIT is acquiring a ramp-up logistics facility at 7 Bulim Street for $129.6 million. The property, which is located within Jurong Innovation District, is master-tenanted to freight forwarding and logistics firm KWE-Kintetsu World Express. According to the REIT manager, the acquisition at a yield of around 7 per cent will be accretive for unitholders and the master lease will provide stability under the current challenging economic condition.

 

Get the full data and latest insights on Singapore's industrial sector here.

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