Viva Industrial Trust UE BizHub EASTViva Industrial Trust's BizHub EAST.

Speaking at an investment fair in Singapore on 3 August, Singapore-listed stapled security Viva Industrial Trust (VIT) (SGX:T8B) has hinted that conditions ahead might "pose some challenges" for the industrial real estate group.

VIT, which consists of Viva Industrial REIT and Viva Industrial Business Trust, was giving an overview of the security to potential investors at the annually-held InvestFair 2014.

In the presentation, VIT highlighted two specific areas which are expected to provide headwinds for Singapore industrial REITs and stapled securities like itself - prevailing market uncertainties and revised subletting policy by Singapore's industrial infrastructure regulatory body JTC Corporation.

“Overall industrial rents are expected to remain stable as industrialists are still expected to be cost-conscious in view of the market uncertainties”, VIT said in its presentation, hinting that rent escalations will be muted in the quarters to come for Singapore industrial properties.

On top of that, new rules by JTC that will kick in by October 2014 will restrict the maximum allowable sublet quantum of industrial properties for end-user lessees from 50% to 30% of gross floor area (GFA). Third party facility providers must also sublet at least 50% of GFA per allocation to anchor subtenants​.

“JTC revised subletting policy may pose some challenges to REITs in the search for anchor tenants that could meet the requirements”, said VIT.

VIT has however pointed to several positive indicators that may provide respite for industrial REITs and business trusts in Singapore for the coming quarters.

“The global economic outlook is expected to improve with a sustained recovery in the US and Eurozone economies”, said VIT adding that strong growth in Asian e- commerce sector might boost also demand for logistics space in the near future.

VIT has also indicated that it may be looking beyond Singapore for property acquisitions. But it has stopped short of giving specifics on the markets that it is considering, only adding that it is “on the lookout beyond the Asia-Pacific region for properties in markets with strong fundamentals and promising outlook” in which it can make acquisitions.

Units of VIT ended the trading day 0.61% lower from the previous trading day at SGD0.81.

Viva Industrial Trust UE BizHub EAST
Viva Industrial Trust has pointed to JTC's new ruling as a challenge for Singapore industrial REITs in the coming quarters.

By Ridzwan Rahmat

Ridzwan has been analysing REITs and business trusts since 2008, and personally manages a portfolio comprising mainly of SGX-listed REITs. He founded REITsWeek in 2013.