Tuesday, September 25, 2012

Speculators turn to commercial, industrial space

Holding period just 2-3 months for 2012 projects, from over 440 days for 2010
The Business Times - September 25, 2012

THE strata commercial and industrial markets appear to be getting speculative, as investors shift their focus away from the private residential market in search of better returns.

Reflecting this trend, the holding period for strata commercial units has been dropping steadily from an average of 440 days for projects launched in 2010, to 324 days for projects launched last year, and 60 days for projects launched in 2012.

However, the number of profitable and unprofitable transactions is almost equal, based on projects launched from 2010 to 2012. Of the 14 profitable and 12 unprofitable strata commercial unit transactions, the net returns range from $9,777 and $251,227 for the profitable transactions, said Dennis Wee Group (DWG). Losses were between $21,517 and $194,763.

Industrial strata transactions seemed to perform better, with 198 profitable transactions and 13 unprofitable deals, though net returns for profitable transactions and unprofitable transactions were almost the same, at $2,652 to $689,241 and -$8,512 to -$322,215, respectively.

"It seems that the investors of industrial units in projects launched in 2010 achieved the best net returns. This is probably because they enjoy the first-mover advantage and profited from spillover demand because of regulations in the residential market in 2011 and 2012," noted DWG.

The holding period for strata industrial units, too, has witnessed year-on-year drops, from an average of 461 days for units bought in 2010, to 364 days in 2011, and 78 days in 2012.

The shortest time a strata unit was held before sale was only four days, but the buyer probably assigned his option to another investor, said DWG.

Potential investors in the sector should note that the upcoming supply of around 7.1 million square feet (sq ft) of office space, 5.1 million sq ft of shop space and more than 10 million sq ft of industrial space completing in the next few years (excluding potential new launches in the future) will put a cap on any upside in prices and rents, warned DWG.

The Urban Redevelopment Authority (URA) is also clamping down on unauthorised users of industrial space, which could potentially increase the supply of industrial space for sale or lease, thus putting downward pressure on prices and rents.

Some investors, particularly those who are new to the commercial and industrial sectors, may also not know what is included in the saleable area and the exact needs of businesses.

"For example, many strata industrial units are sold on a gross basis, which may include air-con ledges, car park lots, loft spaces or roof terraces. When these are excluded, the usable space is actually much smaller," said DWG.

"In some instances, the buyer is not able to make use of the loft space within the unit as the development has maximised its gross floor area. Similarly for the roof terrace and car park lot, the buyer will not be allowed to build a permanent structure if the gross floor area for the development has been maximised."

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
Email: marshe_inc@yahoo.com.sg
DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G)

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