Rents between older and new industrial buildings widen: C&W

SINGAPORE (EDGEPROP) - Despite a recent hike in investor interest in logistics assets, industrial investment sales are still lagging, and down about 64% from a year ago, according to Cushman and Wakefield (C&W). This figure, which totalled $1.84 billion between 1Q2020 and 3Q2020, is down from $5.12 billion in the same period a year ago (between 1Q2019 and 3Q2019).

Currently, there are low levels of investment activity because long-term players such as DB Schenker, Bollore and CapitaLand in the logistics sector are reluctant to sell their prime logistics assets. Some investors are also bound by sale moratoriums as regulated by the authorities.

However, opportunities abound as investors show interest to redevelop older industrial facilities with under-utilised plot ratios. Brenda Ong, executive director and head of logistics & industrial, says: “We are seeing interest from companies who are keen to sell and leaseback their buildings as part of a business strategy to remain asset-light and re-deploy their funds into their growth plans.”

Ong suggests that one option is to develop build-to-suit facilities to cater to the growing interest amongst multinational companies looking to consolidate or expand. Alternatively, investors can also consider joint ventures with owners of older facilities and under-utilised plot ratio to jointly re-develop the site into a modern and bigger facility for their use and partial letting.

Currently, rental differentials between older and new industrial buildings continue to widen. High tech factory space rents fell 1% while conventional factory rents fell 2.3% year-to-date.

With the exception of warehouses where logistics players operate from and business parks at city fringe, C&W is forecasting industrial rents to be negative by the end of 2020. Average conventional factory and outlying business park rents are expected to fall by around 3% and 4% respectively in 2020.

On the bright side, the outbreak of Covid-19 had caused a sudden increase in demand for warehouse space, after a glut in stock for the past few years. Stockpiling behaviours in the supermarket necessitated more warehouse space. There will also be an increased demand for cold storage logistics as Covid-19 vaccines need to be stored at low temperatures, adds Ong.

C&W adds that demand for industrial space will continue to be driven by biomedical, e-commerce, data centre operators and the food manufacturing and distribution business including cloud kitchens.