SOME developers marketing small strata industrial units on sites that they had bought at earlier state land tenders are expected to tout the 'scarcity value' of such units to potential investors. However, not everyone thinks that that would work.

These projects offer units below the new minimum strata unit size of 150 square metres that is stipulated as a condition for industrial sites sold at Government Land Sales (GLS) tenders from Jan 1.

In addition, for some sites, such as those near MRT stations, strata sub-division of industrial projects will not be allowed in the first 10 years of the project's completion.

Oxley Holdings CEO Ching Chiat Kwong told BT that, for now, the 10-year restriction on strata sub-division for industrial GLS sites near MRT stations sold from Jan 1 is good news to him. It will send investors keen on small industrial units to Oxley's three projects near Tai Seng MRT Station which will have units of mostly 90-100 sq m.

However, in the longer term, 'we may have to change our business model' of developing strata industrial units for sale. 'Maybe we should just rent out industrial property to generate recurring income,' said Mr Ching.

Oxley BizHub 1 and 2 have some 999 strata units in total of which nearly 60 per cent have been sold. The average price for the 60-year leasehold projects is about $650 per square foot.

Marketing for the group's third project in the vicinity - The Commerze @ Irving, with more than 60 industrial units - is expected to be begin early next year.

Developers that can offer units below the future minimum size of 150 sq m will try to tout the 'scarcity value' of their product. But not all buyers will bite at this strategy.

DTZ South-east Asia chief operating officer Ong Choon Fah said: 'Sales of small strata industrial space has already slowed down in recent months amid the economic uncertainty. The supply of small industrial units will come down in future because of the new minimum size, but demand will also be tempered.

'In the first place, many of these small units aren't suitable for the approved use - industrial. So those considering buying them will ask themselves if they want to take the risk.'

She doubts that developers marketing projects on older sites with units below 150 sq m would be able to gain much pricing power by marketing the 'scarcity value' of their projects.

Agreeing, Knight Frank senior director (industrial) Lim Kien Kim said that there would be enough supply of strata industrial units in the market in the next two years or so when the projects being marketed now are completed.

SLP International managing director Peter Ow reckons that the 'scarcity value' argument could have some validity in the short term but not in the long run, given the substantial industrial supply in the pipeline. This will be boosted further by the generous Industrial GLS Programme for H1 2012.

'Although the government has restricted the supply of small units to a minimum size and units that come into the market on new sites sold from Jan 1 will be at least 150 sq m, these too will pose competition to the smaller units on earlier sites when it comes to finding tenants.'

Source: Business Times