But termination of ready-built factory space surprises with 30% fall

NET take-up of industrial space fell again in Q4 2008 for industrial landlord JTC Corporation, as the downturn continued to weigh on businesses.

JTC’s 2008 facilities report released yesterday shows the agency leased or rented out 20,000 sq metres of ready-built factory space in Q4 – a 33 per cent slide from Q3. Affected locations included flatted factories, business parks and standard factories.

Some observers expected companies to return more space to JTC as the economy weakened, but this did not happen in Q4. In fact, termination of ready-built factory space dropped 30 per cent from Q3 to 21,200 sq m.

Most of the terminations – 48 per cent – were because businesses consolidated their operations. The manufacturing sector, which includes electronics and precision engineering, accounted for more than half of the pull-back.

JTC said the termination size was larger in Q3 because more companies moved out of space scheduled for ‘product renewal’ – this is when JTC systematically retires ageing facilities to redevelop sites.

As DTZ’s senior director for research Chua Chor Hoon also suggested, some companies could have sub-let excess space instead of pulling out altogether in Q4. This helps them avoid relocation costs.

After accounting for terminations, JTC’s net allocation of ready-built factory space in Q4 was minus-1,200 sq m, swinging further into negative territory from minus -500 sq m in Q3.

Despite the weak Q4 showing, ready-built factory space enjoyed a decent net take-up rate for the whole of 2008 – net allocation was 90,700 sq m, up from 88,700 sq m in 2007.

Much of the improvement was due to JTC leasing or renting out more business park space, especially in the first phase of the Fusionopolis development.

The occupancy rate for ready-built factory space also rose in 2008 – to a 10-year high of 96.8 per cent.

Take-up of JTC’s prepared industrial land fell in Q4. Across areas such as Jurong Island and Tuas Biomedical Park, which come complete with infrastructure for lessees to develop their facilities, net allocation was 17.5 hectares – 49 per cent down from Q3.

Terminations fell more than 70 per cent to 6.1 ha in Q4. Industries supporting the manufacturing sector accounted for most of the pull-back.

For 2008, net allocation of prepared industrial land was 200.9 ha. This was 41 per cent less than the 10-year high of 341.2 ha in 2007.

JTC said 2008′s ‘sustained performance was against the backdrop of global economic uncertainties and a very challenging environment towards the latter part of the year’.

The manufacturing sector took up a much smaller proportion of prepared industrial land last year – 40 per cent of the gross allocation of 264.8 ha went to the sector, compared with 74 per cent in 2007.

Weakness in the industrial property sector has emerged in the past few months. Data from the Urban Redevelopment Authority in January reflected lower rents and prices in Q4 2008 after more than four years of steady increases.

Source: Business Times – 12 Feb 2009

INDUSTRIAL landlord JTC will temporarily lift the 50 per cent sub-letting cap to help companies cope with the downturn.

Revealing the move in Parliament yesterday, Senior Minister of State for Trade and Industry S Iswaran agreed with MPs that it will strain a company’s cashflow if it cannot sub-let any unused space. JTC will, therefore, lift the cap until Dec 31, 2011.

The announcement comes after appeals from MPs who recalled that JTC had relaxed this policy in 2003. Back then, it allowed lessees to sub-let their entire gross floor area as a short-term measure to help companies through financial difficulties in the wake of the Sars crisis.

Yesterday’s move is on top of 5-10 per cent rent cuts that JTC made last month.

Together with 15 per cent rent rebates announced during the Budget, almost all JTC tenants will benefit from lower rents this year, Mr Iswaran said.

But he resisted calls to raise rent rebates to 30 per cent. He said that at 15 per cent, the rebate offered by the government for JTC, Housing & Development Board and Singapore Land Authority tenants is already more than other lessees and tenants will enjoy, even with a full pass-through of the 40 per cent property tax rebate for industrial and commercial properties owned by private sector landlords.

The 15 per cent rebate will provide savings of more than $300 million to some 31,000 companies in 2009.

Source: Business Times – 10 Feb 2009