Thursday, April 11, 2013

JTC eases sub-letting rule for third-party facility providers

The Business Times  |  April 11, 2013
Minimum space for anchor tenants halved to 1,500 sq m but 50% rule still stands

JTC Corporation has relaxed its sub-letting rule for third-party facility providers, halving the minimum space that each anchor tenant must occupy.

Made on April 5, the change is in response to business needs and will apply to new anchor tenant applications, said a JTC spokesman.

According to a previous ruling, lessees of JTC property wishing to sub-let their gross floor area (GFA) to other tenants would have to sub-let at least 50 per cent of the building's GFA to one or more JTC-approved anchor tenants, each committing to a minimum GFA of 3,000 square metres. While the 50 per cent rule still stands, the minimum GFA for an anchor tenant has been reduced to 1,500 sq m.

Property consultants were largely supportive of the relaxation of the rule.

Tan Boon Leong, executive director of industrial services at Colliers International, said that the rule change was "welcome news", and would encourage more flexibility and efficiency on the part of developers.

"It would cause lesser hardship on the landlord," he said, noting that the limit of 1,500 sq m would be easier to accommodate in floor planning.

Even so, Savills Singapore industrial director Dominic Peters considered it a "minor change", and did not foresee much effect outside that of Reits. He expects the change to provide "more flexibility in securing smaller tenants".

UOB Kay Hian Research Pte Ltd's April 9 report on the matter calls the relaxation "a win-win for all", allowing industrial Reits to expand their tenant base and small and medium enterprises (SMEs) to tap a wider range of properties.

"The change will benefit all industrial Reits, particularly AReit (Ascendas Reit) and AIMSAMP (AIMS AMP Industrial Reit), and could signal a more accommodating stance by JTC to adapt to the transformation of industrial demand in Singapore," the report said. The research firm believes that the amount of benefit will increase depending on greater exposure to impacted JTC properties and a lower portfolio percentage under master-leases or single-user tenancies, hence the pinpointing of the above Reits.

However, it expects near-term impact to be muted until leases are due for renewal.

If current anchor tenants decide to downsize or decline to renew their leases, the report continued, the change will make it easier to find replacement tenants and hence reduce vacancy risk. Other effects that UOB Kay Hian foresees are the release of space to potential tenants such as SMEs, and the potential reduction of discounts for larger leases due to less bargaining power by smaller anchor tenants.

As for industrial transformation in Singapore, UOB Kay Hian observed that JTC is "shifting away from traditional definitions built around manufacturing activities", something in which the firm feels Singapore cannot compete against the likes of China and Iskandar.

"Gradually, we are seeing a shift towards more productive, higher-value added segments in the manufacturing value chain, such as R&D facilities, and towards niche sectors such as biologics, data analytics and even the development of space satellites," it said.

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C

Senior Sales Director
DTZ Property Network Pte Ltd (L3007960A)

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