Smaller industrial units could offer good value for money

Smaller industrial units could offer good value for money

Yield-chasing investors and business owners looking for cheaper offices boost demand

By Fiona Chan
Apr 08, 2007
The Straits Times
WITH property prices generally on the rise, it may be hard to bag a bargain right now.

But good value is still to be had in a class of property unfamiliar to most small-time investors: industrial assets.

These include not only heavy industrial properties such as warehouses or factories, but also light industrial units that can substitute for offices.

Also known as high-tech space, these properties - especially the smaller and cheaper ones - are seeing increased buyer interest.

Buyers are often retail investors seeking high rental yields and small-business owners looking for cheaper offices.

A prime, 60-year leasehold industrial unit typically costs between $250,000 and $400,000, according to Colliers International.

This contrasts with more than $15 million for a prime freehold Raffles Place office and more than $5 million for a luxury freehold home.

And industrial property also gives a higher annual net yield, of 6.4 per cent on average, said Colliers. Luxury home yields are 2 to 3 per cent, while prime office yields are about 6 per cent.

This may explain why the number of small strata-titled industrial units sold last year doubled from 2005.

Colliers said 214 such units, each less than 150 sq m in size, were transacted last year, up from only 110 deals in 2005.

Interest is strongest in industrial properties of less than $800,000 in value, said Ms Tay Huey Ying, Colliers' director for research and consultancy.

Between January last year and March this year, these units made up two-thirds of all industrial transactions. More than half of them cost between $300,000 and $500,000, she added.

The most popular industrial projects over the past year were 8@Tradehub 21 in Boon Lay Way and Cendex Centre in Lower Delta Road, Colliers said.

So if you are a first-time buyer of industrial property, what should you look out for?

'Interested investors need a budget ranging between $200,000 and $1 million to buy a property with attractive rental returns,' said Ms Tay.

Properties in this price bracket are usually multi-user flatted or ramp-up factories meant for general, non-pollutive uses.

Ms Tay also recommends going for a 'good-sized unit' of between 1,000 sq ft and 1,500 sq ft, located in established central areas such as Ubi, MacPherson and Alexandra.

Most industrial projects have 60-year leases and are cheaper than their freehold counterparts.

Since tenure does not affect rental rates, shorter leases 'would be more affordable, yet yield higher returns', said Ms Tay.

She added that buyers should also consider fitting-out costs as industrial units are usually bare, unlike offices or homes.

Whether one is buying for investment or for occupation also determines the type of loan one takes, said OCBC Bank, a major lender for commercial properties.

Investors should consider a shorter lock-in period for resale flexibility, while owner-occupiers could take a fixed-rate package to avoid being affected by future interest rate increases, said OCBC's business head of enterprise banking, Mr Tan Chor Sen.