Cold, grey factory spaces often come to mind when “industrial real estate” is mentioned. But that certainly isn’t how Donald Han sees this sector. As CEO of one of the world’s largest listed Syariah-compliant industrial Reits managing some $1 billion in total assets – including high-tech and general industrial, as well as chemical warehousing and logistics – he sees them as vibrant spaces with integrated retail and F&B areas to support the industrial functions.

Sabana redefined its strategy when Han took the reins in 2018, and its plans for growth covered three phases: optimisation of portfolio through targeted divestments; evaluation of key strategic assets with under-utilised plot ratios, where footprint can be increased through asset enhancement initiatives (AEI); and expansion by acquiring yield-accretive properties in Singapore or abroad. AEI refers to strategic renovations to improve income yield.

Sabana CEO Donald Han
Donald Han, CEO of Sabana Reit.

Now in Phase Two, Sabana is carrying out AEI work on its flagship asset, New Tech Park (NTP) in Lorong Chuan. It’s working to add a mall with nearly 43,800 sq ft of retail and F&B space to complement the core industrial block. “The AEI will create an integrated work, entertain and play space for our tenants and to attract new visitors,” says Han. “There will be a new retail podium which will provide our 3,500 tenants with an array of dining options as well as a gym, supermarket and lifestyle retail services.”

In essence, the move is expected to help drive up occupancy by strengthening demand for the industrial block.

“We are already seeing the positive knock-on effect. Almost all tenants with leases up for renewal have extended them since construction began last year.” Already, NTP has gathered interest from companies in the fintech sector, and top F&B corporate offices that are keen to relocate. Han adds that “27 per cent of the mall space has already been leased, with another 43 per cent under advanced negotiations. We look forward to its opening in the third quarter of 2020”.

Such rethinking is critical as he reveals that the industrial real estate sector has come down from its peak in 2013 and 2014, and both rents as well as capital values are some 30 per cent lower. “We were starting to see the industrial sector bottoming out but, as expected, the Covid-19 pandemic has changed that. Most sectors are on a firm downtrend now, including industrial real estate.”

The property veteran points out that the manufacturing sector – which accounts for approximately 25 per cent of the GDP and is a substantive engine of industrial space demand – has been in recession for more than 15 months due to the trade war between China and the US.

“A recent survey by the EDB showed that Singapore manufacturing and services firms are more pessimistic about their prospects over the next six months amid the pandemic,” Han says. “This is natural as Singapore is an export-driven economy, while larger regional economies with huge population bases can still be cushioned by local consumption. Covid-19 has created a seismic dampener on demand. More industrialists are looking to lower real estate footprint and reduce occupancy cost.”

Despite the doom and gloom, he sees light on the horizon – coming from the pharmaceutical, logistic, biomedical, medical, technology and telecommunication sectors. “Due to an oversupply of space currently, these companies have plenty of relocation options. They are always looking for newer, hightech- specific properties in central Singapore like NTP or those near retail centres and train stations. Warehouse and logistic properties are also in demand, thanks to the e-commerce emergence.

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“Sabana Reit is well-positioned for these trends. Most of our 18 properties are located in strategic, sought-after locations, and we have a strong track record of serving the needs of the new economy. Indeed, 82 per cent of our properties are designed for high-tech and/or warehouse and logistic use.”

Han also predicts that, given the rental growth in the CBD office market in the last three years, many tenants will be looking to move back-end and even front-end operations out of the CBD to capitalise on lower occupancy cost and for business continuity purposes. In particular, technology firms will be looking towards decentralised locations that can meet their needs.

Han, who has led companies through the 1997 Asian financial crisis, the dot.com bust at the start of the millennium and the 2009 global financial crisis, remains optimistic. “Every recession will inevitably see some big names come under threat, but the key to survival during these tumultuous times is not to lose strategic focus and to maintain prudent cash flow and debt management while having even closer engagement with stakeholders to communicate plans. I know we can get through this together.”

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Industry observers weigh in on the outlook of Singapore’s different real estate sectors following Covid-19

Industrial sector: The black horse

This might come as a surprise, given the common prediction for a slowdown in the manufacturing sector, but “this sector holds the greatest investment potential”, says Alan Cheong, executive director for Research and Consultancy at Savills Singapore.

He points out that it is likely to reorganise its operations and highlights three factors that might push the need for industrial real estate: supply chain consolidation; inventory management moving from Just-In-Time to Just-In- Case; and manufacturers concentrating production and storage in or near markets.

More importantly, there would also be increased demand in seven areas: vertical farming and agrotechnology, and cold chain storage – both a reaction to our country’s goal for 30 per cent home-grown food; business continuity planning centres; data centres, especially with the introduction of 5G; sustainable industrial and logistic facilities; Industry 5.0, which sees modern manufacturing processes transformed to integrate work for man and machine; and tech incubator/research facilities.

Desmond Sim, head of research for South-east Asia at CBRE Singapore, paints a more conservative picture. “The immediate impact of Covid-19 is a fall in the purchasing index. While Singapore will benefit as companies shift manufacturing bases out of China and into South-east Asia – as their products are likely to go out to the rest of the world via Singapore – our manufacturing sector largely produces intermediate products, and we will be impacted when regional markets are sick.”

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