All tender offers exceed $5m reserve price; top bid hits $12.1m

A LAND parcel suitable for industrial use in the Kaki Bukit area has drawn a record number of bids.

The 115,342 sq ft plot in Kaki Bukit Road 2 was launched for public tender on July 14 after an unnamed party submitted an application bid of $5 million, or $43 per square foot per plot ratio (psf ppr).

Bidding ended yesterday with 18 offers on the table, all of them exceeding the reserve price of $5 million. This is the highest number of bids ever received for an industrial site, according to the Urban Redevelopment Authority (URA).

Previously, the highest number received was 14, for an industrial plot in Commonwealth Drive in November 2007.

The top bid of $12.1 million for the 30-year leasehold site at Kaki Bukit – zoned as a Business 2 development for a range of clean, light and general industrial uses – was made by privately held Kng Development.

This translates to a unit land price of $105 psf ppr and is 16.5 per cent more than the second-highest bid of $90 psf ppr submitted by the trio of Lee Siaw Ling, Low Khoon Huat and Ang Lai Huat.

It is also 142 per cent ahead of the application bid and beats the $72 psf ppr that Eastpoint Development paid for a 30-year leasehold industrial site along Kaki Bukit Road 3 in August 2007.

Mr Lim Kien Kim, Knight Frank’s head of business space (industrial), said the site drew a lot of interest as Business 2 sites are usually situated farther out in Tuas or Changi, and it is ‘very difficult to find a Business 2 site in the Kaki Bukit area’, which is considered more prime.

Mr Li Hiaw Ho, executive director of CBRE Research, said the response reflected the improving business sentiment.

‘The top six bids of above $75 psf ppr could be reflective of the bidders’ expectation that Singapore’s manufacturing sector will improve in the near future,’ he said. He noted that although Singapore’s economy was still shrinking, the pace of decline had slowed.

‘After eight months of contraction, the Purchasing Managers’ Index moved above the important 50.0 benchmark in May, indicating growth in the manufacturing sector. The index has since remained above the benchmark,’ he said.

Mr Tan Boon Leong, director of industrial sales at Colliers International, pointed out that the site is attractive to ‘a wide variety of end-users and a whole spectrum of industrialists’ because it is located in a mature industrial estate and has Business 2 zoning.

‘Moreover, it’s quite small, so in terms of quantum it’s very affordable. The level of interest goes to show or confirm that the economy seems to be turning from its lowest point now,’ he said.

The tender has not yet been awarded to any of the bidders. A final decision on the award will be made after the bids have been fully evaluated, said the URA.

Source: Straits Times, 13 Aug 2009

(SINGAPORE) An industrial site along Kaki Bukit Road 2, put up for sale by the government, drew an impressive 18 bids by the close of tender yesterday.

The Urban Redevelopment Authority (URA) said that the highest bid received for the 30-year leasehold site was $12.1 million, more than double the minimum bid price of $5 million.

That highest bid, which works out to just under $105 per square foot per plot ratio (psf ppr), was placed by Kng Development, whose shareholders include Ng Teng Yeng, brother of property tycoon Ng Teng Fong; Kim Chan Wah and Ng Hock Lye.

Kng’s bid is 16.5 per cent above the second highest bid of $10.4 million, or $90 psf ppr, submitted by Lee Siaw Ling, Low Khoon Huat and Ang Lai Huat.

It is also higher than the $72 psf ppr which Eastpoint Development paid for a 30-year leasehold industrial site along Kaki Bukit Road 3 in August 2007.

This latest site, offered from the government’s reserve list, has an area of 1.07 ha and a gross plot ratio of one. CBRE Research says that the breakeven cost for Kng Development is likely to be $250 psf.

‘The robust response to the tender reflects the prevailing improving business sentiment,’ said Li Hiaw Ho, executive director at CBRE Research.

He noted that the top six bids were all above $75 psf ppr and ‘could be reflective of the bidder’s expectations that Singapore’s manufacturing sector will improve in the near future’.

Colliers International director (industrial) Tan Boon Leong said that the large number of bids received was not surprising as the ‘quantum amount is small’.

He thinks that the good response reflects greater confidence in the economy, as well as the fact that the plot lies within a mature industrial estate and is zoned for a Business 2 development, which means that it can be developed for a range of clean, light and general industrial uses.

Mr Tan also said that some of the bids were placed by contractor developers ‘who are probably more competent in judging their construction costs, and with prior experience, may thus be bolder when it comes to putting in bids’.

URA’s decision on the award of the tender will be made after the bids have been evaluated, and disclosed at a later date.

Source: Business Times, 13 Aug 2009

Negative 32.2 ha compares with net allocation of plus 14ha in Q1

7% average drop q-o-q follows 3% decline in 4Q08: DTZ

(SINGAPORE) Industrial rents fell faster in the first quarter of this year against a backdrop of shrinking demand amid the recession.

DTZ said yesterday the average drop was 7 per cent quarter on quarter, after a 3 per cent decline in the preceding Q4 2008.

Average rents for upper-storey private conventional industrial space fell 7.5 per cent quarter on quarter to $1.85 psf per month in Q1, after a 2.4 per cent dip in Q4.

First-storey rents fell 4.3 per cent to $2.20 psf per month in Q1, again a bigger decline than 2.1 per cent in Q4.

Hi-tech industrial property, which includes business and science park space, has been hit by a double whammy of less spillover demand from the office sector and lower industrial demand – and saw the biggest drop in rents in Q1. The average monthly rent for this space slid 9.3 per cent quarter on quarter to $3.90 psf in Q1, after a 4.4 per cent drop in Q4.

DTZ said leasing activity was quiet in Q1, as manufacturers focused on cost containment. Sub-letting activity is expected to increase over the next few quarters as tenants downsize operations and return space to the secondary market. A huge supply of 15.4 million sq ft of private industrial space is slated for completion this year. This includes about 2.4 million sq ft of business park space, of which about 48 per cent is pre-committed.

‘In the wake of weaker demand, this large impending supply of industrial space will add downward pressure on rents,’ DTZ said. Industrial property investment sales in the first three months of this year include Premium Automobile’s $12 million purchase of a site at 281 Alexandra Road for a sales, service and parts facility.

And Beng Kuang Marine’s fully owned unit Pico Enterprise, a long-term tenant of 38 Tuas View Square, obtained an option to buy the 60-year leasehold property for $7.2 million. With the economy showing no sign of bottoming, the outlook for the industrial property market is bleak, DTZ said.

‘Competition among industrial landlords is expected to intensify, especially in the face of huge new supply this year,’ it said.

‘To help ease occupancy costs, JTC Corp recently relaxed the 50 per cent sub-letting cap and allowed tenants to sub-let their entire gross floor area until Dec 31, 2011.

‘JTC and the Housing and Development Board also gave 15 per cent rent rebates to their tenants. These will add to pressure on other landlords to lower rents and offer more lease incentives or flexible lease structures to retain existing tenants and attract new ones.’

Source: Business Times, 2 Apr 2009

Modest cuts possible for ex-JTC tenants if economy worsens

MAPLETREE Investments said yesterday it might consider modest rental cuts for aggrieved industrial tenants at its ex-JTC properties – if economic conditions deteriorate further.

Many tenants have petitioned Mapletree, a Temasek Holdings unit, for hefty rent cuts to help them cope with tough market conditions.

They are also upset to have missed out on a 15per cent rental rebate granted by JTC Corp as part of the Government’s Resilience Package.

This is because the rebate was granted after JTC sold $1.7billion worth of its flatted factories, stack-up buildings and ready-built assets to Mapletree last July.

These properties are now held by Mapletree Industrial Trust (MIT), a private Reit that is 30.5per cent owned by Mapletree and the rest held by other investors such as Arcapita.

One MIT tenant who has rented his ex-JTC factory space in Lorong Bakar Batu for 22 years, Mr Foong Khai Leong, told The Straits Times: ‘The rents keep going up, business is going down…and now the Government is giving a rental rebate to tenants of JTC…I not only cannot enjoy the rebate, I may now have to cough up more when I renew my lease.

‘If we don’t fight for lower rents, we will have little choice but to fold up the business. Who’s going to pity us?’ said the managing director of May Tat Plastics.

MIT said it will not be cutting rents for now, even as the downturn hits small and medium-sized enterprises (SMEs). ‘We are also similarly impacted,’ said Mapletree Investments chief executive Hiew Yoon Khong. He said a 15per cent rental cut was definitely out as it could trigger a loan default for MIT. ‘In this environment, we can’t take that kind of risk.’

However, a smaller rent cut could happen. ‘If the environment continues to deteriorate, we will consider it,’ said Mr Hiew.

Some observers are sympathetic to the tenants’ plight. ‘It’s quite unfortunate. The timing is bad as just several months ago, they were JTC tenants,’ said Colliers International director of industrial sales Tan Boon Leong.

Many of MIT’s tenants will likely be affected as they are SMEs occupying the cheapest of the ex-JTC factories. JTC rents are generally below market rates, said Mr Tan.

But, they need to change their mindsets. ‘They cannot expect the landlord to give them the full rebate because this landlord also has to account to shareholders,’ said Mr Tan.

MIT’s financing burden has risen as it requires an additional capital top-up of $140million. Its interest costs have almost doubled; it faces stricter loan convenants and it has had to defer cash distributions.

Mapletree Investments’ CEO (Industrial) Phua Kok Kim said: ‘If we have difficulty filling the space at the new rents, then naturally rents will come down.’ The new rents are the rates MIT is charging for 70 new non-business park space tenants so far and they are all above the renewed rates of ex-JTC tenants.

Mapletree said the 1,448 tenants of MIT’s flatted and stack-up factories, as well as warehouses, all benefit from a 5per cent rental cap – of JTC’s rent on July 2007 – when they renew their leases before July next year.

There is no cap for the remaining 108 – or 7per cent of – tenants in its business park buildings. Mapletree said it is doing what it can on a case-by-case basis. It has arranged instalment plans for 18 firms to help them settle arrears, for instance.

Source: Straits Times, 14 Mar 2009