Ravi Chandran
– Strong demand for food factories nearer to the city centre
– Monthly rents achieved in established food zones range around SGD1.5–2.4 psf, while food factories transacted at between SGD142–325 psf
– Robust upcoming supply pipeline of 3.68 million sq ft of food factory space island-wide, with about 80% due to be completed in 2019-2020
Colliers International on May 29, released its latest research report which tracks the performance of food factories – a type of industrial property – in Singapore and evaluates emerging trends and market outlook for the segment.
Broadly, food factories are dedicated facilities where food is stored, processed, cooked and packaged for delivery to food and beverage (F&B) establishments or retail customers. According to Colliers Research, the majority of food factories in Singapore are located in the North and West regions, typically within various JTC Food Zones. Their unit sizes range from 3,000–5,500 sq ft in older premises to 10,000–40,000 sq ft in new buildings.
Demand drivers
Colliers Research notes that demand remains strong for food factories nearer the city center, with mature food manufacturing areas such as MacPherson, Pandan Loop and Bedok North able to maintain occupancy between 80% and 100%. However, food factories in newer and further locations like Tuas and Senoko tend to have much lower occupancies of around 60%.
Ms Tricia Song, Head of Research for Singapore at Colliers International, said, “We expect demand to lag behind supply in 2019-2020 but still remain sustained, driven by rising popularity of food delivery services and e-commerce, the need of F&B operators to streamline their retail spaces, as well as the government’s push for greater productivity and innovation in Singapore’s food industry. In addition, we note that some owners of factories within or in close proximity to designated food zones are considering converting their properties into food factories.”
Colliers Research observes that delivery service providers also solidified their presence in the face of rising competition. In March 2018, Foodpanda opened its first central kitchen with a dine-in option in Woodlands Industrial Xchange. The following month, Deliveroo launched its second central kitchen in CT Hub 2, offering a pick-up option.
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Robust supply pipeline
According to data from JTC, a total of 637,115 sq ft of food factory space (equivalent to 1–2% of current food factory stock) came on-stream in 2019 to date, a surge from the 31,431 sq feet (2,920 sq meters) completed in all of 2018.
Another 3.68 million sq feet of food factory space (or about 9–10% of current food factory stock) is in the pipeline with more than 80% scheduled to be completed in 2019-2020. This supply influx is located mainly in the North, East and West regions. The largest upcoming project, JTC Bedok Food City, with a total Gross Floor Area of more than one million sq ft, is slated for completion in early 2020. Meanwhile, an integrated Halal Food Hub, which will span 600,000 sq ft, is expected to be ready in two years.
With robust supply coming on-stream, Colliers Research expects rents and prices of food factories to remain largely stable over the next three to five years.
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Rental rates and capital values
Rental rates and prices of food factories could vary quite widely depending on location, building design, specifications and remaining land tenure. Due to the time sensitivity for food catering and delivery services, central kitchens located near the CBD area or residential neighborhoods command higher rents and prices than average.
Based on transacted data from JTC, aggregated factory rents and prices in major food zones in the East, North-East and Central regions outperformed the West Region and North Region, probably due to their closer proximity to the city center. Nevertheless, monthly rents achieved in established food zones can range around SGD1.50–2.40 per square foot (psf) in the West Region (Pandan Loop, Jalan Tepong) and SGD1.80–2.40 psf in the North Region (Senoko Avenue, Mandai Link).
In addition, well-located food factories with better specifications like freezer and refrigerated facilities can fetch about 25–35% higher price than average food factories. In March 2017, US-based PGIM Real Estate acquired 1 Buroh Lane, a cold store food distribution center, at SGD300 psf. In March 2019, WTT Trading divested their food factory with cold store at 3 Mandai Link for SGD325 psf.
In general, Colliers Research expects food factories to offer attractive yields of about 6–7% (for 30-year land tenures) to qualified investors.
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Outlook and recommendations
The food manufacturing industry looks set to grow further with the government’s push to develop Singapore into Asia’s leading food and nutrition hub. A Food Manufacturing Industry Transformation Map was launched in November 2016 to spur productivity growth and job creation in the sector.
According to data from the Department of Statistics, it is estimated that F&B facilities accounted for about 10% of the total number of manufacturing establishments in Singapore in 2017.
Mr Dominic Peters, Senior Director of Industrial Services, Colliers International, said, “There are a few bright spots in the industrial property market, with food factories being one of them. As food manufacturers embrace new technologies and innovation to differentiate themselves from the competition, their real estate needs will continue to evolve. We recommend that occupiers be mindful of the regulations and keep an open mind to facilities further from the city center in view of rent savings; and operators to continuously upgrade their facilities to remain competitive.”
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