Demand for business park space remained healthy in Q2 2013 as the market retained positive net absorption. Vacancy rates fell slightly from 6.3 per cent in the previous quarter to 6.2 per cent. This was partially backed by the expansion of existing tenants which has improved the occupancy rate in several existing buildings. Samsung took up more space in Mapletree Business City and Biomedical firm Covance expanded its laboratory space in The Synergy.
Performance of known new developments under construction is also encouraging as several occupiers have also locked in space at Business Parks in the pipeline. For instance, it is understood that Jurong Town Corporation has reserved a significant portion of Fusionopolis Phase 2A for a potential occupier, leaving only about 10 per cent of the remaining space available for lease. There are also advanced negotiations in Fusionopolis Phase 5 for as much as 20 per cent of its leaseable space, some 18 months before its expected completion.
Two more built-to-suit developments will be completed by 2014 at Changi Business Park. DBS Hub Phase II with 76,000 sf and Rigel Technology’s R&D Centre, the size of which has yet to be confirmed. This brings the total potential future supply from now until the end of 2016 to approximately 5.43 million sf. Of this new supply, we estimate 40 per cent has been precommitted.
This includes both speculatively built buildings and built-to-suits. Michael Tay, Executive Director, Office Services said “Despite the pipeline in the next 4 years, the pre-commitment level reduces the possibility of an over-supply situation during this period. We expect the market to maintain positive net absorption as it benefits from the growth activities across selected industries in Singapore and decentralisation by some office occupiers.”
The two-tier Business Park market is gradually taking shape. As at the end of the second quarter of 2013, Business Parks in the central area including One-North and Mapletree Business City recorded average rents of $5.30 psf/ month. Rents of Business Parks in the rest of the island, including Science Park, Cleantech II and Changi Business Park stood at $3.80 psf/ month, flat quarter-on-quarter.
Overall, rental upside can be expected in locations or buildings with high occupancies but locations with lower occupancies due to new building delivery or secondary stock may find rental growth staying flat due to competition for occupiers in these locations. Also, ample office supply in the next 4 years should keep office rents competitive and this should have the impact of restricting sudden or sharp spikes in Business Park rents in the medium to long term.
It was a quiet quarter for the factory market amidst signs of a pick-up in Singapore’s manufacturing activity as most occupiers maintained a wait-and-see approach for expansion and relocation plans. Demand was mostly driven by governmental efforts to push the manufacturing sector towards a higher value-added one. Key deals in Q2 2013 include United Microelectronics Corporation investing about $140 million into a research centre and fragrance company Givaudan setting up a $100 million production and research facility. Landlords havebeen reluctant to reduce asking and headline rents, opting to attract tenants via non-rent incentives instead. Consequently, factory rents stayed stable for the past four quarters since Q2 2012.
Industrial capital values continued climbing even as investment volume appeared to have fallen as most sellers and developers sought to hang on to their asking prices. CBRE’s capital values for 60-year leasehold and freehold factories and warehouses thus registered growth of about two to five per cent q-o-q. Notably, 60-year leasehold factories registered the slowest growth due to the relatively bigger supply of existing and new properties with similar tenures available for sale. Examples of such new projects that opened for sale in Q2 2013 include The Westcomin Tuas and Gemini@Sims.
About CBRE
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2012 revenue). The Company has approximately 37,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CB Richard Ellis offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our Web site at www.cbre.com.sg
Disclaimer:
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world's largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.
