Surge in number of industrial properties sold at a loss

More strata industrial properties were sold at a loss this year as rents and prices continued to weaken. In particular, the proportion of unprofitable deals for shoebox units spiked from 6% in 2015 to 22% in 2016 to date, while the average profit per transaction dropped from $162,827, or 42%, last year to $111,449, or 30%, this year.

Shoebox industrial units are defined as those that are less than 150 sq m. The study by The Edge Property matched resale and sub-sale caveats of strata industrial units with previous caveats, based on URA Realis’ caveat records as at Nov 27. Profit or loss was computed based on the difference in selling and purchase prices, taking into account the prevailing Seller’s Stamp Duty (SSD) rate, where applicable, but excluding other costs.

The biggest loss for a shoebox strata industrial unit so far this year accrued to a 1,539 sq ft unit at North Spring Bizhub that was bought for $1.2 million, or $767 psf, in a subsale in February 2014. The seller sustained a loss of $383,900 after paying a 5% SSD, or $41,900, from the sale of the unit at $838,000, or $544 psf, in August. North Spring Bizhub is a 60-year leasehold development on Yishun Industrial Street 1 that was completed in 2013.

Separately, a 1,163 sq ft unit at One Pemimpin was sold at a loss of $238,000, the second highest seen this year. The seller had bought the unit from the developer at $1.2 million, or $1,065 psf, in July 2012 and sold it at $1 million, or $860 psf, in March. One Pemimpin, completed in 2012, is located on Pemimpin Drive, off Marymount Road. It sits on a 999- year leasehold site.

Island-wide vacancy rate for factory space climbed for the sixth consecutive quarter to reach a decade-high 11% in 3Q2016, according to the latest JTC data published on Oct 27. The property price index and rental index of industrial property declined 1.7% and 2% q-o-q respectively in 3Q2016.

In its recent report, property research house Savills says the monthly rents for its basket of prime factory and warehouse properties tumbled 6.3% q-o-q to $1.50 psf on average in 3Q2016. Meanwhile, upper-storey prices of its 60-year leasehold industrial units fell 4.7% q-o-q to $445 psf in the quarter, the lowest recorded price since 2013. Prices of 30-year leasehold units also marked a new low at $361 psf after a 2.1% q-o-q fall in 3Q2016. Owing to limited supply, prices of freehold industrial property were the most resilient, with a 1.4% q-o-q decline to $680 psf.

--thisisapagebreak

The third-highest loss of $201,900 for a shoebox unit accrued to a 1,292 sq ft unit at Oxley BizHub. The seller had bought the unit from the developer at $861,900, or $667 psf, in May 2011 and sold it at $660,000, or $511 psf, in August. Oxley BizHub, located on Ubi Road 1, was completed in 2013 and has a 60-year tenure.

So far this year, Oxley BizHub is the development with the largest number of unprofitable transactions for shoebox strata industrial units, with five units transacted at a loss and one at a profit. Pioneer Point, completed in 2014 and fronting Boon Lay Way, takes second place, with four units transacted at a loss and three at a profit.

Oxley BizHub has the highest proportion of unprofitable transactions so far this year

Bigger units fared better

The proportion of unprofitable transactions for conventional units that are 150 sq m or bigger also trended up, from 9%, or 27 out of 286 transactions, in 2015 to 18%, or 46 out of 255 transactions, year to date. The average profit per transaction fell from $366,724, or 54%, to $277,717, or 44%, over the same period (see chart).

Source: URA REALIS, The Edge Property

The biggest loss of $510,000 for a non-shoebox strata industrial unit so far this year accrued to a 3,003 sq ft unit at Entrepreneur Business Centre at Kaki Bukit. The unit was bought at $1.6 million, or $533 psf, in May 2012 and sold at $1.1 million, or $363 psf, in September. Entrepreneur Business Centre was completed in 2004 and has a 60-year leasehold tenure.

At Joo Seng Warehouse, a freehold development on Upper Aljunied Link, a 2,056 sq ft warehouse unit was sold at the second-highest loss for a non-shoebox strata industrial unit so far this year. The seller had bought the unit at $1.65 million, or $803 psf, in a sub-sale in May 1996 and sold it at $1.26 million, or $614 psf, in January, incurring a loss of $388,300.

The third-largest loss in the non-shoebox segment accrued to a 2,303 sq ft unit at Link@AMK, a 60- year leasehold development completed in 2014. The unit was bought from the developer at $1.14 million, or $495 psf, in December 2012 and sold at $800,000, or $347 psf, in August.

So far this year, 8B @ Admiralty is the development with the largest number of unprofitable transactions for non-shoebox strata industrial units, with four units transacted at a loss and one at a profit. 8B @ Admiralty is a 60-year leasehold development completed in 2013.

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Apex @ Henderson and Enterprise Hub trailed closely, with three loss-making transactions for non-shoebox units each. Apex @ Henderson is a freehold development completed in 2015, while Enterprise Hub is a 60-year leasehold development completed in 2007.

There have been three loss-making transactions at Apex @ Henderson so far this year

Entry prices

Notwithstanding the current soft market, high entry prices have caused investors to burn their fingers. In comparison, entry prices at developments with the highest proportion of profitable transactions this year, such as Food Xchange @ Admiralty, First Centre and Woodlands 11, were similar or at a discount to those of neighbouring strata industrial properties in 2011 and 2012. The profit for units bought at these three developments in 2011 and 2012 and sold this year ranged from $75,981 to $640,000, or 13% to 73% (see table).

Source: URA REALIS, The Edge Property

Savills expects rents for industrial and warehouse space to soften by another 5% y-o-y in 2017. Although the niche segments of the industrial market, such as warehouse space, look promising owing to e-commerce activities, the property consultancy does not expect them to form a large-enough bulwark to counter the strong cross-winds buffeting traditional warehousing users.

Singapore’s GDP growth is likely to be at the lower end of the 1%-to-2% range this year and just slightly higher next year, based on the Monetary Authority of Singapore’s macroeconomic review released on Oct 25.

This article appeared in The Edge Property Pullout, Issue 758 (Dec 12, 2016) of The Edge Singapore.

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