Food factories to offer higher yields compared to office, retail: Colliers

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/ EdgeProp
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May 30, 2019 5:06 PM SGT
Source: Colliers
In line with rising demand for food factories and central kitchens in Singapore, real estate consultancy Colliers expects such facilities to offer more attractive yields compared to office and retail, it highlighted in a report released on May 29.
Colliers forecasts that food factories with 30-year land tenures are able to offer yields of about 6-7%, compared to 3.25-3.65% for office properties, and 4.4-4.9% for retail properties.
Demand for food factories and central kitchens in the country has risen over the years, with a focus on major food zones in the east, north-east and central regions, the report states.
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A total of 637,115 sq ft of food factory space (equivalent to 1-2% of current food factory stock) has come into supply in 2019 to date, a surge from the 31,431 sq ft completed in the whole of 2018.
Source: Colliers
Factory rents and prices in major food zones in the east, north-east and central regions have outperformed the west and north regions, based on JTC data, according to the report. Colliers believes that this is due to their close proximity to the city centre or residential estates, which facilitates food catering and delivery services.
However, in established food zones in the west region (Pandan Loop, Jalan Tepong) monthly rents can range from $1.50-2.40 psf, while those in the north region (Senoko Avenue, Mandai Link) can fetch $1.80-2.40 psf.
Mature food manufacturing areas such as MacPherson, Pandan Loop and Bedok North are able to maintain occupancy between 80% and 100%, reveals the report. Meanwhile, those in newer and further-off locations, such as Tuas and Senoko, tend to have occupancies of around 60%.
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Colliers also found that well-located food factories with better facilities such as freezers can fetch about 25-35% higher prices than others. In March 2017, US-based PGIM Real Estate acquired 1 Buroh Lane, a cold store food distribution centre, at $300 psf, Collier highlights. In March 2019, WTT Trading divested its food factory with a cold store at 3 Mandai Link for $325 psf.
The increased demand and rents in the F&B industry reflect the Singapore government’s push to raise productivity and cut reliance on manpower, as outlined in the Food Manufacturing Industry Transformation Map rolled out in November 2016. The plan includes developing quick models like ready-to-eat meals, promoting adoption of manpower-lean tech, equipping employees with new skills, and expanding the reach of Singapore’s F&B companies globally.
Source: Colliers
Upcoming supply
An upcoming 3.68 million sq ft of food factory space (9-10% of current food factory stock) is expected to come into supply, concentrated in the north, east and west regions. Of that, 80% is scheduled to be completed in 2019-2020.
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The largest upcoming project, JTC Bedok Food City, has a total gross floor area of more than 1 million sq ft, and is slated for completion in early 2020, notes Colliers.
An integrated Halal Food Hub of 600,000 sq ft is also expected to be completed in two years, at a cost of $80 million-100 million. This was proposed this May by Elite Partners Capital and the Singapore Malay Chamber of Commerce and Industry to position Singapore at the forefront of innovation in the region’s halal industry.
Overall, Colliers forecasts demand to lag behind supply in 2019-2020. Demand, however, will be sustained by the rise of popularity of food delivery services and e-commerce – Foodpanda and Deliveroo started their central kitchens in the last two years; the need of F&B operators to streamline retail spaces; and the government’s push for greater productivity and innovation in F&B, it says.
Meanwhile, rents and prices of food factories are expected to remain largely stable over the next three to five years, it adds.