The misuse of industrial space has become rampant. With new strata projects offering office-like designs and proximity to transport nodes, the trend has become even more widespread.
Businesses ranging from law firms and real-estate agencies to accounting and tax advisory firms, recruitment agencies, training providers, commercial schools and boutique investment firms have taken up units in industrial premises such as Oxley BizHub, UB. One, AZ @ Paya Lebar, CT Hub in Kallang, and One Commonwealth.
Industrial units in these projects zoned Business-1 (B1) were mostly sold to investors and end-users.
Such unauthorised trades operating there are drawn to these B1 developments by their lower rents vis-a-vis commercial property rents and proximity to MRT stations.
Current asking rents in Oxley BizHub are around S$2 to S$3 per square foot (psf) a month; at CT Hub, industrial units available for rent now start at S$3 psf. Rents for office space in Paya Lebar Square, on the other hand, are between S$4 and S$6 psf, based on online listings.
Under the guidelines of the Urban Redevelopment Authority (URA), buildings approved for industrial use are meant primarily for activities such as manufacturing and warehousing; certain types of e-business and media activities may also be allowed.
Under a 60-40 rule, at least 60 per cent of total gross space of the development has to be used for core industrial activities, and up to 40 per cent for ancillary uses. In strata projects, units also have to comply with the 60-40 rule.
URA guidelines bar the conversion of factory units into places of worship or offices for religious organisations, though the common facilities of the building or the ancillary spaces within each factory unit can be considered for religious use in a “limited and non-exclusive” way.
Office landlords are losing corporate tenants who are happy to operate in the grey area of leasing B1 space slated for factory use and operating their business there.
At the same time, there are also B1 landlords who are willing to accept office users under a “factory use” lease contract.
The playing field is thus tilted against rule-abiding parties.
The downturn in the residential market may have resulted in this problem. When multiple rounds of residential cooling measures sent investors piling into the industrial segment between 2010 and 2013, the unwitting ones among them snapped up strata units in industrial developments in the hope of getting high rental yields.
Clearly, the misuse of industrial space has been exacerbated by the proliferation of shoebox units in projects built without the right specifications for genuine industrialists.
But even in older industrial buildings such as Halcyon Building in Jalan Pemimpin and Midview City in Sin Ming, non-authorised users can be found.
Meanwhile, net demand for industrial space islandwide has withered, dropping 66.2 per cent year on year in the first nine months of 2016 to about 1.13 million sq ft, based on JTC’s data on change in occupied space. This was mainly due to negative net demand in the Central Region (stretching from Bishan to the Southern Islands and Queenstown to Marine Parade) and the East Region.
High vacancies in these projects could be due to the already ample space in the B1 market. The sputtering manufacturing sector still faces headwinds despite an uptick in output in the fourth quarter. Because of relocation costs, industrialists may be put off moving into newer projects, even if these are built to suitable specifications.
At 9 Tagore Lane and North Spring BizHub in Yishun, newly completed ramp-up factories offer access to every floor for trucks. The units here have been sold out by developers – but lie largely vacant.