After steady increases for over four years, prices and rents of industrial spaces were now affected by the economic slowdown, dropping by 6.5 percent and 3.7 percent in Q3 and Q4 of 2008, respectively.
The office space sector also weakened steadily, with prices and rents plunging 4.9 percent and 6.5 percent, respectively.
These drops in rents will probably give comfort to companies by slumping demand during the downturn. Furthermore, with cost-cutting plans applied by the government, some home-owners could transfer savings to tenants.
The data of the Urban Redevelopment Authority in Q4 showed the initial signs of the industrial property weakness, as expected by some consultants. Until then, prices and rents had been increasing each quarter since Q2 of 2004.
“The economic turmoil and shrinking manufacturing sector slowed the take-up rate for factories and warehouses in the fourth quarter,” said Li Hiaw Ho, executive director of CB Richard Ellis Research. For example, the occupied factory space amount increased to 175,000 square metres during Q4, this was below the 344,000 square metres in Q3.
The industrial rents increased by 4.2 percent in 2008, on a year-on-year basis. Prices also soared slightly, by 1.5 percent. This was accounted by the strong take-up in Q1 to Q3 of the year.
However, the office sector unsurprisingly softened once again during Q4. “The continued price for office space reflects limited investor interest in quality office buildings as economic sentiment remains pessimistic,” said Nicholas Mak, director of consultancy and research in Knight Frank.
Office rents grew by 5.8 percent in 2008, but quite disappointing compared to 2007, when it reached 56.1 percent. Office sector prices fell by 7 percent in 2008, a big difference from 32.6 percent gain in the previous year.
Mister Mak expected a steady weakening of the office market this year, but stated that there is hope for the market. “Sombre economic conditions will encourage office space providers to be more understanding,” said Mr. Mak. “Landlords will be more willing to retain tenants by renewing leases at lower rents, and offer more generous incentives such as longer rent-free periods.”
The 40 percent property tax rebate of the Budget for commercial and industrial properties for 2009 could aid in the market’s recovery. “The government strongly urges landlords to pass on the benefits of this rebate to their tenants,” said Minister of Finance Tharman Shanmugaratnam in the Budget statement in Thursday.
To help in reducing costs in business, “We intend to pass on the property tax rebates to tenants of CapitaLand’s wholly owned commercial and industrial buildings as well as the portfolio of properties owned by CapitaCommercial Trust,” a spokesperson of CapitaLand said. Likewise, “We will pass on the property tax rebates in full to our tenants in properties owned by CapitaLand Retail and CapitaMall Trust.”
The City Developments also told the Business Times that it is searching for ways to allow passing of savings to tenants.