A Factory With 31 Years Left Can Work. A Headline Yield Is Not Enough.

Thirty-one years can be a long time for a business. It is a finite amount of time for a property investment.

Colliers has put 48 Changi South Street 1 on the market by private treaty. The B2 property has about 31 years left on its JTC lease, with a reported gross floor area of approximately 44,367 sq ft. Its specifications include floor loading of up to 50 kN/sq m, a ceiling height of up to 7.6 metres and a 1,000 kVA power supply. See the Colliers sale announcement.

Those specifications could be highly useful to the right occupier. They are also a good way into a wider question: how should a buyer assess an industrial property whose land lease is steadily running down?

First, separate business value from investment income

For an owner-occupier, a suitable factory can cut handling time, house machinery that will not fit elsewhere, or avoid repeated relocation costs. Those advantages create value through the operating business.

An investor letting the same property is running a different calculation. Rental income has to compensate for expenses, vacancy, the capital committed and the steady reduction in the remaining property interest.

Neither buyer should ignore tenure. They can reasonably arrive at different prices, because the property is solving different problems for each of them.

A 5.5 per cent gross yield does not describe the whole return

Here is a simplified example, unrelated to the asking price or rent of 48 Changi South Street 1.

Assume a factory unit costs S$1.2 million and produces S$66,000 a year in rent. That is a 5.5 per cent gross yield on the purchase price. Allow an illustrative S$18,000 a year for ownership costs, maintenance and vacancy, and the cash income falls to S$48,000, or 4 per cent, before financing and acquisition costs.

The buyer still has to think about what happens to the S$1.2 million. If there is no extension and no residual sale value at the end of the lease, that capital cannot simply be assumed to come back intact.

Even 31 years of flat S$48,000 receipts totals S$1.488 million before considering the time value of money, major unforeseen expenditure or tax. That arithmetic is not a valuation. It shows why a rental yield is not the same thing as a return calculation for an asset with a finite life.

Your future buyer gets a shorter lease

After a ten-year hold, a property with 31 years remaining today would have around 21 years left. The next purchaser and their lender will assess it on that basis.

It is unwise to build a resale estimate by applying today's price per square foot to the same floor area. Work from the future lease balance, the building's condition and the likely occupier instead. Financing availability and terms should be checked with lenders for the actual asset and the intended exit horizon.

The last years of the holding period deserve attention too. A major repair just before sale can absorb a meaningful share of the expected proceeds. A large tenant leaving at the same time makes the exit harder still.

Useful premises can still be a good purchase

I would not dismiss an industrial property purely because it has 31 years left. That can be ample time for a business with a clear operational plan, particularly when the alternative is paying rent for equivalent premises.

The sensible approach is to compare purchase and lease options over the intended period, allow for the actual financing structure and use a conservative residual-value assumption. Any potential land lease renewal should be assessed separately on its documented terms, rather than treated as automatic.

The attraction of a factory should survive that exercise. If the only convincing number is the headline gross yield, the analysis is not finished.