Doing the math of renting a business property
By Edith Tay
/ PropertyBank, The Edge Property |
Companies that carry out industrial activities can look to Business 1 or Business 2 zones under the master plan for accommodation. The B1 zone covers areas used, or set aside to be used, for clean and light industries, warehouses, public utilities and telecommunications, and public installations for which the relevant authority does not impose a nuisance buffer greater than 50m. B2 areas are used, or marked to be used, for clean and light industries, general industries, warehouses, public utilities and tele communications, and other public installations.
In both zones, the quantum of permitted ancillary uses should not exceed 40% of the total floor area. People often have the misconception that if 60% of a building has been leased for industrial use, a non-industrial user can occupy it. This is not the case. It is important to note that each occupier has to qualify to use more than 60% of such spaces for industrial purposes.
Today, we can find a good number of well- located industrial buildings near MRT stations and in low-cost outlying locations, for use as manufacturing or warehousing facilities. The rentals can differ significantly according to the location and condition of the space.
Unlike offices, which come with standard fittings, cemented or raised floors, suspended ceilings, standard fire sprinklers and protection systems, and central or split unit air conditioning, industrial space can be fully or partially fitted, or totally bare. Most landlords prefer to lease their space with the “as is, where is” clause, or bare. We have seen some handing over bare units with no distribution boards to tenants, who then find that they need to incur high capital expenditure to install a board and engage a licensed electric al worker to apply for power connection. Tenants should get a contractor to assess a space before confirming its lease.
Broadly, there are three different landlords of industrial properties: private, the JTC Corp and the HDB. JTC and HDB impose sublet fees and they collect from their immediate lessees. Upon approval of the subletting application, JTC informs its lessee of the terms and fees to be paid for the entire tenure, payable together with the monthly land rental. Similarly, HDB will inform its lessee of the sublet consent fee payable. However, most building owners pass this fee on to the tenants. Besides getting consent to sublet from JTC or HDB, where they are the landowners, companies have to seek approval from the National Environment Agency (NEA) and the respective authorities (see Table 1).
The URA has issued circulars to revise the guidelines for e-business and media uses as well as supporting uses such as canteens, showrooms and childcare centres (see Table 2).
Table 1
Table 2
Wrongful use of industrial premises — such as for non-industrial purposes — was widely reported in 2013. With the completion of newer industrial buildings that look like office buildings, it is hard to tell whether the space you are keen on is in an industrial or commercial zone, unless you check the master plan.
We encourage those who plan to set up industrial premises to seek the help of professionals so they can be sure that they meet the approved usage requirements. The last thing a business owner wants is to spend money on setup costs, then find he has to move out because he is operating in the wrong zone. He may also be charged with failing to comply with the 60:40 ruling for industrial space and can be fined up to $200,000 or sentenced to 12 months’ jail, or both. While industrial rents have fallen and industrial buildings have become a good alternative, companies must ensure that their activities comply with the regulations.
Edith Tay is executive director of PropertyBank Pte Ltd, a real estate consultancy firm that offers customised solutions for commercial real estate needs. She can be reached at edith.tay@ propertybank.com.sg
This article appeared in The Edge Property Pullout of Issue 691 (August 24) of The Edge Singapore.
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