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--- insight777 (7/6/2012)
THE capital values of industrial space rose in the last quarter but rents eased as firms turned cautious about taking on more commitments, according to a new report.

Property consultant DTZ said prices have edged up partly because cooling measures in the residential sector have diverted some investors to the once unglamorous market of indus-trial real estate.

Benchmark prices have also been set in new project launches.

The freehold project AZ@Paya Lebar, for example, has units priced above $1,000 per sq ft, more expensive than even some residential developments.

Prices in the secondary market for first-storey industrial space increased 4 per cent to $577 psf in the three months to June 30, compared with the first quarter, while upper-storey prices rose 4.9 per cent to $430 psf.

Rents tended to go in the other direction, with rates falling for business park and high-tech industrial space although they held firm for conventional industrial sites.

Average rents for business parks and high-tech space dipped 0.7 per cent quarter-on-quarter to $4.35 psf per month while conventional industrial rents on upper storeys were unchanged at $1.75 psf per month.

Ms Chua Chor Hoon, DTZ's head of Asia-Pacific research, noted that yields are being compressed because prices are rising faster than rents.

'Nevertheless, we expect to see further price increases as the shorter tenure and 10-year restriction in sale of strata-titled units for new sites sold in the government land sales programme will funnel more demand to resale and new industrial properties that are not affected by the restrictions,' Ms Chua said.

But rents are tipped to keep falling, given the slowdown in economic growth, which will only compress yields further.

Rents of high-tech industrial sites are expected to fall more than those for conventional space as most of the upcoming supply will cater to this segment, said Ms Cheng Siow Ying, DTZ's executive director of business space.

Mr Chan Chong Beng, president of the Association of Small and Medium Enterprises, noted that the dip in rents is marginal compared to the run-up in rental costs over the past couple of years.

'But we should give the recent measures introduced by the Government some time to take effect before deciding on what's next,' he added.

'The authorities have shown every intention to stabilise the increase in costs. They have been conducting a lot of dialogues to get feedback and that is a good sign.'

Ms Cheng added that the authorities are also cracking down on firms or organisations using industrial sites for unauthorised purposes such as offices. These tenants can often pay more than a conventional industrialist.

The most recent numbers are for the first quarter and these show that prices of factory and warehouse space have shot up 7.3 per cent, almost double the pace of gains in the previous three months.

Last year, industrial land prices surged 27 per cent while rents were at their highest level in 14 years.

To tackle this surge in prices, a total of 47.69ha of land - about 1.4 times last year's total - will be put up for sale this year by the Government in areas such as Tuas, Ubi, Serangoon and Woodlands.

Source: The Straits Times

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