Commercial Properties vs. Industrial Properties in Singapore

For property investors in Singapore, there are three primary avenues to explore: residential, commercial, and industrial properties. While residential property investment is well-documented and widely discussed, commercial and industrial properties are often overlooked. This article aims to serve as an introduction for commercial and industrial properties in Singapore 

Commercial vs Industrial

The Main Differences Between Commercial and Industrial Properties 

Commercial properties in Singapore include office buildings, retail spaces, serviced offices, medical suites, and hotels. These properties are strategically located in bustling business districts and are designed to generate rental income and appreciate in value over time.

Industrial properties, on the other hand, cater to manufacturing, production, and other industrial activities. They are classified into B1 (Light Industrial), B2 (Heavy Industrial), food factories, business and science parks, and wafer fab & advanced display parks.

Types of Commercial Properties

Office Spaces:

Grade A Offices: High-end office buildings located in prime areas like the Central Business District (CBD), attracting large corporations and commanding premium rents.

Shophouse Offices: Heritage buildings with unique charm, often more affordable than Grade A offices, popular among creative industries.

Serviced Offices: Fully equipped offices offering amenities like reception and IT support, ideal for small businesses and foreign companies.

Co-Working Spaces: Shared office environments fostering networking and flexibility, suitable for freelancers and small teams.

Retail Properties:

Shopping Malls: Prominent locations from Orchard Road to suburban areas, offering a wide range of retail spaces.

Mixed Developments: 

Buildings combining retail with residential or office spaces, located in high-traffic areas for convenience.

Medical Suites: 

Specialised spaces for healthcare providers, typically found in accessible areas within mixed developments.

Hotels: 

Catering to both tourists and business travellers, ranging from luxury to budget accommodations.

Types of Industrial Properties

B1 Industrial Properties

B1 industrial properties, suitable for light manufacturing, can be close to residential areas and may include showrooms. Modern buildings may offer amenities like pools and courts. Freehold B1 properties are found in Kallang, Geylang, and Sims.

B2 Industrial Properties

B2 industrial properties, designed for heavy manufacturing, require more substantial nuisance buffers and are located further from residential areas. Many are situated in Tuas, home to Singapore's future mega port.

Food Factories

Food factories are designated for food production and can only be located in food zones. These factories, often flatted or terrace types, are licensed for food repackaging, manufacturing, and storage. Most are situated in northern and eastern Singapore.

Business & Science Parks

Business & Science Parks, such as International Business Park and Changi Business Park, are designed for clean, light businesses involved in R&D, high-tech, and knowledge-intensive activities.

Wafer Fab & Advanced Display Parks

Wafer fabrication and advanced display parks cater to the specific needs of these industries and are primarily located in Woodlands, Tampines, and Pasir Ris.

Tips for new Investors Looking at Commercial and Industrial Properties

Investing in commercial and industrial properties presents a different set of challenges and opportunities compared to residential properties. While the ultimate goals remain the same—generating rental income and achieving capital appreciation—the methods and markets differ significantly. Here are some key differences to consider:

Target Market: Businesses vs. Individuals and Families

Commercial/Industrial: Your primary tenants are businesses. Economic fluctuations can greatly impact rental yields, as businesses may downsize or close during recessions, leading to a swift decline in rental demand and returns.

Residential: Individual and family tenants are less volatile, providing more stable rental income even during economic downturns.

Payment Restrictions: No CPF for Mortgage Repayments

Commercial/Industrial: Mortgage repayments must be made in cash, meaning you cannot use CPF savings. This requires you to ensure sufficient rental income or have cash reserves to cover mortgage payments.

Residential: Mortgage payments can be made using CPF savings, allowing for more accessible funds while earning rental income in cash.

Lease Duration: Typically Shorter for Commercial/Industrial Properties

Commercial/Industrial: Leases are often 30 to 60 years, much shorter than the typical 99-year lease for residential properties. This shorter lease period must be factored into the overall investment return calculations.

Residential: Generally have longer leases, providing a longer horizon for rental income and property appreciation.

Competition: Competing with Large Entities

Commercial/Industrial: You are competing with large developers and government agencies, such as the Jurong Town Corporation (JTC), which have extensive networks and resources to attract and maintain tenants. These entities can afford significant property enhancements to keep their properties desirable.

Residential: Typically owned by private individuals, providing a more level playing field in attracting tenants.

Conclusion:

Investing in commercial and industrial properties in Singapore offers unique opportunities and challenges compared to residential property investment. By understanding the key differences investors can make more informed decisions tailored to their financial goals and risk tolerance. We will go more in depth on the different financial and investment challenges and opportunities for commercial and industrial properties in future articles.

If you're interested in learning more about investing in commercial and industrial properties in Singapore, we invite you to contact us for a no-obligation consultation. With decades of experience and deep expertise in the Singapore real estate market, our team is well-equipped to provide personalised advice tailored to your unique investment goals and circumstances. We'll leverage our extensive knowledge to help you navigate the complexities of the market and make the most informed and strategic investment decisions possible. Whether you're a seasoned investor or just starting out, we're here to support you every step of the way.

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