May 17, 2021

Inside Asia: Rents Rising Along the Byways of Singapore

SINGAPORE — Far from the crowds in the glitzy shopping malls of Singapore, Cynthia Neo runs a bridal boutique tucked away in a nondescript industrial building in an old housing estate, pushed off the main street by pricey retail rents.

The owner of JC Bridal Collections, Ms. Neo pays one quarter the rent she once spent on a shop in the heart of Chinatown, where a string of restaurants, hotels and retail shops meant a steady stream of shoppers.

But rising rents may be creeping into the industrial parks too. Prices for industrial properties have surged 27 percent this year since a government focus on residential investment pushed speculators into factories and warehouses.

Residential property developers are starting to wade into the light industrial market too, trying out upscale “lifestyle” office parks that look like posh condominiums.

Some established industrial players say valuations are getting too high.

“It’s been our assessment that the market has started to get a little hot,” said Nick McGrath, chief executive of AIMS AMP Capital Industrial, which is listed in Singapore.

“We’ve used the strength of the market in the last 12 months to sell properties, rather than buy,” Mr. McGrath added, saying that AIMS AMP, a real estate investment trust, has shifted its focus to improving existing assets, rather than buying more.

Singapore’s government has introduced six rounds of measures to cool rising home prices, including an additional stamp duty aimed at foreign buyers and a cap on tenures for all new residential property loans.

Those actions succeeded in capping property price increases this year — the residential market is up just 0.96 percent for the year through October — but they did not bring about the 10 percent fall that some analysts had predicted.

Now the government is turning its attention to industrial property. In July, to make land prices more affordable to businesses, Singapore capped lease terms for industrial sites sold under a government land sales program at 30 years instead of 60.

Singapore’s light industrial parks, typically simple midrise buildings with a few standard facilities like cargo elevators and unloading bays, are home to small and midsize startups, wholesale businesses and other offices.

But rising shop rents have made industrial parks increasingly attractive to store owners who would normally prefer customer-friendly malls or pedestrian-filled shopping streets, and some have started converting part of the industrial space for retail.

The rising industrial property prices have not fully filtered through to rents in these buildings, which are up a relatively modest 6 percent this year, but when long-term leases are renegotiated, tenants may be in for some shock.

That could create problems for owners of small businesses, who are grappling with higher operating costs.

“Inflation and labor costs are already high. Some are worried about rents that may inadvertently increase in tandem with prices,” said Png Poh Soon, head of research at Knight Frank Singapore.

That may lead some businesses to buy industrial properties instead of renting. “Together with the investors, the increase in demand drove prices up amidst cheap financing, creating a self-fulfilling prophecy of higher prices and cost of doing business,” he said.

Pixal Culture, a photography studio that focuses on weddings, bought a unit in an industrial building in western Singapore in 2008, the owner Steven Yeo said. “It’s much easier, because landlords may get you out after a few years. Nobody can increase our rents.”

Inderjit Singh, a member of Parliament and an entrepreneur, asked the government last month what its plan was to keep industrial land affordable for small and medium-size enterprises. Local news media reported that the response from Lim Hng Kiang, the minister for trade and industry, had been that rising industrial rents had not reduced Singapore’s competitiveness.

Mr. McGrath said that he had observed more investors speculating in the industrial market’s subdivided space, where carved-up smaller units have commanded rents three to six times as high as his warehouses.

The sharp rise in industrial property prices has rung alarm bells for some but attracted new interest from developers. The construction firm Hock Lian Seng Holdings won a bid in June to develop a site in an industrial area in Singapore’s east.

Residential developers are also getting into the industrial game — and bringing some homey touches with them.

Oxley Holdings, which has built residential projects with units selling for $2 million apiece, started developing “lifestyle” industrial properties last year — complete with swimming pools, gyms and rooftop gardens.

It has inaugurated four such projects, two of which have been fully sold, indicating strong demand for units that are sold “strata-title” — the system of owning space in multistory buildings, despite high valuations.

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