Price standoff: Industrial space sales slide as stingy buyers lock horns with developers

The landlords may soon be forced to yield.

Singapore’s industrial sales remained weak in Q2, trapped in a battle between cost-conscious buyers and profit-driven developers. But the landlords may well be fighting a losing battle.

According to Colliers, the price standoff between buyers and sellers would likely keep transaction volume at depressed levels, unless one party gives way.

The report noted that developers are likely to continue to selectively release units in their new projects for sale, as it would be to their advantage to do so earlier rather than later, given the rising competition for buyers.

“This also means more effort would have to be devoted to the design of the industrial developments to ensure the functional space requirements of the targeted end-users or industrialists are met, and that projects are competitively priced, bearing in mind the continued effects of the TDSR as well," noted Colliers.

The report further added that "Against this background, and keeping in view the expected rise in competition for tenants who could qualify for industrial space, especially with the completion of more strata-titled industrial developments, rents of prime conventional industrial space could ease by up to 2.0% in 2H 2014 from June 2014’s levels.”

Here’s more from Colliers:

However, the average capital values of prime freehold conventional industrial space are expected to hold steady for the rest of 2014 as sellers, in general, are not expected to relent on their price expectations due to the scarcity of such properties, since the maximum tenure for the Government’s industrial land parcels will stay at 30 years.

In contrast, the leasing market could continue to experience healthy activity levels in terms of both enquiries and committed deals over the next six months, on the back of generally better economic sentiments and Singapore’s attractiveness as a regional headquarter base, as well as research and development hub for firms looking to grow their footprint in Southeast Asia.

Notwithstanding this, overall industrial rents are expected to remain stable or ease over the next six months, as industrialists are still expected to be cost-conscious, taking into consideration the presence of lingering downside risks such as the recent political turmoil in Iraq that could potentially derail the global economic recovery.

Moreover, Singapore’s dismal manufacturing sector performance for the month of May, which saw an annual
2.5% contraction in output, could now result in a cut-back in Singapore’s full year economic growth forecast.