No subletting of HDB industrial properties from June 2015

By Rennie Whang, The Straits Times, 31 Mar 2015

TENANTS of Housing Board industrial properties will not be allowed to sublet them from June 1 - though existing subletting agreements will be allowed to continue up to the end of 2017.

This is a change from the maximum 50 per cent of factory floor space that a tenant can currently sublet, the HDB said yesterday.

Experts said the move should have little impact on market rents, given the small proportion of subletting that goes on.

They also noted that plenty of vacant industrial space is on offer - about 3.9 million sq m as of the fourth quarter of last year.

The change is to better meet the main purpose of such space - "to support industrialists in operating their core businesses", said the HDB. It will also "promote more responsible and productive use of scarce industrial land, by encouraging tenants to rent only the amount of space they need".

This will align HDB's subletting policy with that of industrial landlord JTC, which last year cut the maximum amount of space that a main tenant can sublet from 50 per cent to 30 per cent.

The HDB manages nearly 12,000 industrial properties, including workshops, warehouses and factories. About 98 per cent are rented out. Some 380 tenants, or about 3 per cent of all its tenants, are subletting space.

While no figures are available for the premiums that main tenants charge for their sublet space, the rates are typically comparable to what they are paying the HDB, said Colliers International (industrial services) executive director Tan Boon Leong.

Four tenants and subletters whom The Straits Times spoke with confirmed this.

"Renting out half the unit is like sharing costs instead of paying the full price," said a manager at car-care firm Tuffi Group in Sin Ming Industrial Estate, who gave his name only as Mr Phua. He rents out half his unit.

Mr Tan said the rule change could be tough for industrialists who fall on hard times midway through a lease term. Subletters said it will be hard to keep going.

"We share the space as rent in the area is high... We might have to shut down," said a manager at TIK Car Repair Shop in Sin Ming Autocare, who asked to be named only as Jennifer. TIK uses about half a unit and the main tenant pays the HDB about $6,000 monthly.

The change guards against problems that may arise from subletting, such as either tenant running into financial problems, said Century21 chief executive Ku Swee Yong.

SLP International executive director Nicholas Mak said prices and rents have been declining. With a further 4.6 million sq m of factory space and 1.4 million sq m of warehouse space - both in gross floor area - to be completed by 2019, industrialists "have a lot of choices".

Additional reporting by Stephanie Heng and Ong Kai Xuan