Industrial investments could hold better potential and reap higher value.
Are there still opportunities to invest in the logistics sector? What is the appeal of freehold industrial buildings for investors? What are some trends to keep an eye on in the industrial sector – and trends that could make a comeback?
In the final of a 3-part Investment outlook for our Real Estate Talk series, Capital Markets and Investment Services experts Pearl Lok (PL) and Desmond Lim (DL) explore investment opportunities in the Industrial and Logistics sectors.
PL: In 2020, we saw the pandemic lead to a growth of e-commerce and stockpiling, resulting in investors favouring logistics facilities. Moving into 2021, would you continue to recommend logistics properties to the investors?
DL: Investors have been chasing industrial opportunities with good yields. On the back of the growth of activities resulting from COVID-19 as well as our progression towards Industry 4.0, we still recommend investors to consider investing in the logistics sector.
PL: On that note – with the Singapore government pushing for Industry 4.0, what types of industrial properties will benefit from it, other than logistics properties?
DL: As the government is gearing up Singapore to be the world’s first smart nation by 2030, digitalising the economy and positioning Singapore as a tech hub, we can expect more tech businesses setting up base in Singapore.
Freehold industrial buildings such as the one at 14 Genting Road are rare and may command a premium due to location
From the end-user’s perspective, we will see higher demand for well-situated suburban B1 leasehold high-specs space. We may also see more interest from investors in such leasehold industrial buildings, as they can be comparable in terms of quality to centrally-located spaces, yet are more affordable alternatives.
Investors could also explore other submarkets, such as freehold properties. Freehold industrial buildings located in city fringe areas such as Macpherson or Upper Paya Lebar are excellent options. These locations are the prime districts of the freehold sectors – they are rare and command a premium.
“Investors could consider freehold opportunities that offer value play such as redevelopment, repositioning or retrofitting potential to reap higher value from the property.”
Freehold industrial buildings also have good capital preservation and appreciation potential. Moreover, there are not as many statutory regulations to comply with, as compared to the leasehold JTC industrial buildings.
PL: Institutional investors usually stay away from freehold industrial buildings due to lower yields as compared to leasehold properties. What would then be the appeal of freehold industrial buildings?
DL: We could be creative about it and structure reversionary interest from the freehold land tenure. For example, investors can consider buying the property with a 30-year or 45-year lease.
Alternatively, investors could consider selecting freehold opportunities that offer value play such as redevelopment, repositioning or retrofitting potential to reap higher value from the property.
PL: Other than the logistics sector that was the highlight of the year, we also saw the emergence of cloud kitchens and its rising popularity over the years. How do you think this trend of cloud kitchens will affect the demand for food factories?
DL: There are only a few food zones in Singapore. With or without cloud kitchens, food factories – especially those in city fringe locations such as Tai Seng or those near residential catchments – could offer last-mile service, will fetch reasonable prices and are worth taking a look.
Related content: Robust Growth of Food Factories | Colliers Flash report
PL: Do you think there’s a possibility of the re-emergence of retail warehousing in Singapore?
DL: Retail warehouse – where elements of both retail and warehouse functions are integrated – is something exciting and we feel that the government should revive the Warehouse Retail Scheme (WRS). Look at how IKEA, Courts and Giant have provided a refreshing retail experience for consumers.
“Retail warehouse is something exciting and we feel that the government should revive the Warehouse Retail Scheme… Potential locations could be Punggol/Sengkang or Woodlands, where there is still a good amount of undeveloped land.”
Retail-warehouse also streamlines the supply chain process and reduce the costs involved. The Big Box building in Jurong East has become a white elephant as the use is now strictly restricted to logistics use. Perhaps the government could once again grant approval for WRS; with the right selection of tenants and concept, Big Box Jurong East could come alive again.
We do look forward to the government relaxing some of the usage restrictions to inject life into some industrial buildings and optimise their use. Potential locations for such schemes could be Punggol/Sengkang or Woodlands, where there is still a good amount of undeveloped land.
The Bix Box building is an eight-storey industrial development in Jurong East, initially developed under the Warehouse Retail Scheme
PL: If an investor has a budget of up to $300 million, which type of properties would you recommend him to consider acquiring in 2021, and why?
DL: I will advise investors to acquire a balanced portfolio of leasehold logistics facility with good occupancy and a well-situated freehold industrial building with capital appreciation potential.
You may also like:
- The Rise of Cloud Kitchens
- Real Estate Talk: Hunting for High-Specs Buildings
- Creating Opportunities in a Crisis
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