numbers of property developers are dipping their toes into industrial and commercial projects over concerns of a slowing residential housing market.
Higher prices for residential land and uncertainty over another possible round of cooling measures have suddenly made the grittier end of the real estate sector look more appealing.
The past few months have seen keen competition among developers for industrial and commercial sites released under the Government Land Sales programme. A plot in Kaki Bukit Road 4 attracted 18 bids in February while there were 13 offers for an industrial site in Ang Mo Kio Street 62 in March. A commercial site in Paya Lebar Road closed with 10 bids last month.
Developers could also make more money from commercial and industrial buildings if the projects work out.
Some developers told The Straits Times that residential projects typically yield a profit margin of between 15 per cent and 23 per cent, while industrial and commercial properties could reap a profit margin of up to 50 per cent.
Take Wee Hur Development for example. It bought an industrial site in Woodlands Avenue 4 for $22.9 million, or $34 per sq ft per plot ratio (psf ppr). The Straits Times understands that units at the Harvest@Woodlands project were sold at an average of $240 psf.
Listed firm Oxley Holdings is one residential builder trying its hand in the new area with its maiden industrial property project, Oxley BizHub, in Ubi Road 1.
The industrial complex, which occupies an area of 375,153 sq ft, is currently under construction. It consists of three podium blocks and four tower blocks housing 728 factory and warehouse units, and is targeted at clean and light businesses.
Chairman and chief executive Ching Chiat Kwong said Singapore's robust economy has led to more entrepreneurs taking a stab at new businesses and companies planning to expand their operations.
Mr Lim Swee Hoe, director of Aston Investments Development, said businesses may start small but would need facilities for production work, design, and research and development as they grow.
But Mr Lim and Mr Ching said that merely providing space for business operations is not enough these days.
'It's not as easy as just getting an office space somewhere and just starting a business,' said Mr Ching.
'The image and environment play a part in how people perceive a brand, and that carries more weighting nowadays.'
Oxley BizHub tried to integrate lifestyle elements into the building's features, including eco-decks with sky gardens, a swimming pool and a gym.
Mr Ching said the design concept was aimed at changing the perception of how industrial spaces should look.
'People who work there deserve a better place to work too,' he said.
'Providing a working space for a healthier lifestyle will enhance productivity, reduce a high turnover rate and improve morale when workers have to stay to work longer hours.'
The experience developers have in building residential properties gives some of them an edge.
Aston Investments Development's project in Senang Crescent has 'condominium-style' bathrooms in each unit so there are separate toilets for both genders instead of unisex facilities, which are the standard for such properties.
'These new industrial and commercial properties have raised the benchmark on how much you can sell for such spaces,' said Mr Tan Boon Leong, Colliers International's director for industrial services.
In August last year, Oxley paid $158.1 million, or $169 psf ppr, for the Oxley BizHub 60-year leasehold plot. Since its launch, more than 300 of the 728 units have been sold at an average of $677 psf.
But Mr Tan said not all properties will be able to hit such prices, with factors like the leasehold, location and nearby amenities affecting values.
Colliers International said in a report yesterday that the continued economic expansion is expected to shore up demand for industrial properties.
But it added that factors like a slower gross domestic product growth rate of between 4 per cent and 6 per cent this year and global events in the Middle East and Japan should moderate the demand.
This would cause rent, land and capital values of single-user factory and warehouse land to climb by up to 10 per cent over the next 12 months.