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Tai Seng factory bosses squeezed by sharp rental hikes

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Some local bosses operating in factories recently sold by the Government to private companies are feeling squeezed by a sharp hike in rents as previous agreements to cap rental increases for such properties start to expire.

Several firms that occupy three blocks of flatted factories in Tai Seng Avenue told The Straits Times they are facing rental hikes of up to 70 per cent when they seek to renew their three-year leases this year.

This is because they had been enjoying below-market rents under their previous landlord, JTC Corporation, before the properties were sold in August 2011 to Soilbuild Group Holdings, a privately held property group.

To help its former tenants deal with rent increases, JTC agreed to work with buyers of its divested industrial properties to cap rent increases for a few years.

But those rental caps which will start expiring from this year for factories sold in the 2011 tranche, which means tenants will have to start paying market-adjusted rates for their new leases.

They say the sharp rent hike will curtail their competitiveness and may force them to wind up or shift their operations overseas.

The outcry within the three blocks - 1020, 1022 and 1026, Tai Seng Avenue - has reignited the debate on the Government's role in managing industrial space and helping smaller firms cope with the rising cost of doing business.

One tenant, Mr Tan Kai Ching, who owns packaging materials maker Modern-Pak, told The Straits Times that Soilbuild had proposed to jack up his rent by 61 per cent when his current lease expires on Oct 31.

Mr Tan has been paying gross rents of $1.32 per sq ft per month (psf pm) under a three-year lease with JTC, but would have to fork out an average of $2.12 psf pm for a similar three-year lease from Nov 1. This increase in rentals would wipe out his competitive edge and margins, he said.

The Straits Times understands that Mr Tan and Soilbuild are in the process of negotiating new terms.

Other tenants in the three blocks also feel that the new rental rates are "unjustified".

While higher rents are expected, they say the mark-ups could have been more palatable.

Moreover, the Tai Seng blocks are expected to be torn down and redeveloped in 2016, which means the tenants will eventually have to move out.

Some company bosses, who declined to be named for fear of offending the landlord, said they may either close or relocate their operations outside Singapore.

If it comes to that, these tenants say they may have to lay off their local workforce.

A tenant who wanted to be known as Mr Chua, who provides support services for the electronics industry, said he is already struggling to break even. "I may have to retrench my 18 Singaporean staff who are in their 50s, and how will they find another job?" he asked.

Tenants at other factories previously sold by JTC to private developers have also kicked up a fuss over higher rents.

Many have had to downsize operations as their margins are squeezed by both the higher cost of labour and rental.

JTC said last year that it would work with buyers of its divested industrial properties to cap rent increases at between 5 and 10 per cent over a few years.

The industrial landlord confirmed this recently with The Straits Times but noted that rental cap agreements differ between buyers. The Tai Seng Avenue factories have a two-year cap.

When contacted, Soilbuild said although the renewal rents at the Tai Seng properties have increased from the previous rates, they are still lower than others in the area.

Based on the latest rent charges for high rise flatted factories on JTC's website effective from July 1, tenants at 166, Kallang Way - about 3km from Tai Seng - have to pay gross rents of between $1.82 and $2.36 psf pm.

Soilbuild, on the other hand, is offering gross rental rates of $1.55 to $2.24 psf pm to Tai Seng tenants seeking lease renewal.

Some analysts say the renewal rents charged by Soilbuild are competitively pegged.

Still, the pain of rising costs that smaller businesses in Singapore face is very real.

Credit from The Straits Times - 7 August 2013
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