Jurisdiction - Singapore
Singapore – Competition Assessment Of The Industrial Property Market: CCS Decides That No Immediate Action Is Necessary.

16 April, 2013




On 2 April 2013, the Competition Commission of Singapore (“CCS”) published a paper titled “Competition Assessment on the Industrial Property Market in Singapore” (“CCS Paper”). Amongst other things, the CCS Paper reviewed industry practices and regulations in the industrial property market in Singapore from 2002 to the first quarter of 2012 that may hamper or distort competition. Other markets that have previously been studied by CCS include the retail petrol market and the retail mall space rental market.

The CCS Paper arose as a response to feedback that the business community has faced sharp increases in industrial property prices and rentals in recent years (CCS cited a Straits Times article which reported that industrial rents had increased by almost 30% in the first three quarters of 2012 alone.). It was suggested that the increases could have been caused by the growing presence of Real Estate Investment Trusts (“REITs”) that have sufficient market power to drive up industrial rents. The acquisitions of JTC Corporation’s (“JTC”) industrial properties by Mapletree Industrial Trust (“Mapletree”) and the Soilbuild Group (“Soilbuild”) could also have strengthened these players’ market power, resulting in higher rents.

CCS found no evidence that a single landlord or group of landlords is dominant in the industrial property market. None of the common contractual practices in the industrial property market were found to be abusive. CCS also concluded that JTC divestments had not resulted in a substantial lessening of competition in the industrial property market. Finally, that rental trends in the industrial property market have not been moving out of tandem, and therefore do not display any evidence of anti-competitive activity. 

With no specific competition law concerns, CCS decided that it would not take any immediate action in the industrial property market in Singapore.


Market definition

CCS defined the broad product market as industrial property market, because it found that industrial property is not substitutable with commercial or retail property due to the regulatory conditions imposed by the Singapore Government. CCS further defined narrower product markets for three types of industrial property – factory space, warehouse space and business park space – as there is limited substitutability between them. 


As for the relevant geographic market, CCS considered Singapore to form a single geographic market given the country’s small size, improved infrastructure and ease of transport. While CCS acknowledged that industrial properties in different areas may not always be substitutable for each other, it noted that the competition analyses for geographic markets within Singapore would not be significantly different.

Abuse of dominance (the “abuse of dominance hypothesis”)

CCS’s first theory of harm in the CCS Paper postulates that an industrial REIT or a group of industrial REITs are dominant in the market for industrial property space in Singapore and is/are engaging in business practices to foreclose the market thereby driving up rental. 


To test this hypothesis, CCS analysed rental trends, the market structure and the contractual practices in the market and its findings are as follows:

Rental trends

CCS found that in the period from 2009 onwards, rental prices increased at the fastest rate in almost two decades. However, industrial production increased more rapidly than industrial rent over the same period. CCS also found that changes in industrial rents have not been significantly different from changes in retail rents, while increases in commercial rents have outpaced industrial and retail rents. CCS therefore concluded that the increases in rent were not unusual and were underpinned by increases in industrial activity.


Market structure

CCS found that about 60% of industrial space is held by end-users, who do not lease out their space. CCS analysed the market on the basis of both the entire industrial property market and the narrower industrial investment space market, which excludes the 60% held by end-users.

CCS found that, even within the narrower industrial investment space market, no company or group of companies has a market share that would cross the indicative threshold of dominance of 60% (The largest single player is JTC, with 21% of the market. The largest group of affiliated players is the public sector, consisting of JTC and Housing & Development Board (“HDB”), which together hold a 33% market share. The largest single REIT, Ascendas REIT, has a market share of 15%, while the largest group of affiliated REITs is the Mapletree Group, with 17%. Even if all industrial REITS were taken as a single group (even though they are not affiliated), their market share would be only 40%.) as articulated in the CCS guildelines titled “CCS Guidelines on the Section 47 Prohibition” (“Section 47 Guidelines”).


CCS noted that the barriers to entry are mainly regulatory and are not unique to the industrial property market. CCS also found that countervailing buyer power varies across different tenants and across different market conditions.

Overall, CCS considered that no single company or group of affiliated companies is dominant in the industrial property market in Singapore. 


CCS further considered whether industrial REITs could be collectively dominant in the industrial property market or in a market segment of their own, therefore giving rise to co-ordinated effects. According to the Section 47 Guidelines, three elements are needed for a finding of collective dominance; sufficient market transparency to monitor other players’ conduct, sustainable and enforceable tacit co-ordination, and predictability in competitor and consumer behaviour.

CCS noted that whilst publicly listed REITs have transparent portfolios, the terms of individual tenancies are not transparent, and discriminatory practices are commonplace. The patchy demand for tenancies and the differences among industrial properties make it difficult to tacitly co-ordinate behaviour. The volatile industrial property market also makes competitor and consumer behaviour unpredictable. CCS therefore concluded that there is unlikely to be collective dominance among the industrial REITs.

Contractual practices

CCS analysed contractual practices in the industrial property market to determine if any of them are potentially abusive. Based on comparisons with other property markets, CCS found that contractual practices in the industrial property market do not appear to be abusive. Based on the above findings, CCS concluded that there is no evidence of dominance, based on the structure of the market, and no evidence of abuse, based on rental trends and contractual practices in the market.

Substantial lessening of competition arising from a merger (the “merger hypothesis”) CCS’s second theory of harm postulates that the acquisition of JTC assets by Mapletree and Soilbuild, under JTC’s two phases of divested industrial property in 2008 and 2011, could have resulted in a lessening of competition in the relevant market(s) and therefore an increase in rents. 


CCS similarly undertook an analysis of rental price trends, the market structure and the level of market transparency, and its findings are as follows:

Rental trends

CCS found that rents charged by Mapletree and Soilbuild are below the market average. While Mapletree’s rents increased, their absolute amounts remained below the average industry rent because the industrial properties acquired by Mapletree are subject to a rental increase cap of 5% per annum for three years. It remains to be seen how rents will change after expiry of the cap. CCS concludes that the rental trends of Mapletree and Soilbuild properties are probably not useful in proving or disproving the merger hypothesis, at least for now.

Market structure

CCS found that the indicative thresholds for a substantial lessening of competition as a result of a merger, as articulated in the CCS guidelines titled “CCS Guidelines on the Substantive Assessment of Mergers”, are not met, even in the narrower industrial investment space market (The Mapletree Group holds a 17% market share while Soilbuild holds 3% – both below the 20% threshold for a single undertaking. The post-merger CR3 (Ascendas REIT, JTC and HDB) is 48%, less than the indicative threshold of 70%. Even the post-merger CR3 of the top three affiliated groups of undertakings is 64%).

Furthermore, the marginal increase in the market shares of Mapletree (8.4% to 16.7%) and Soilbuild (0% to 2.5%) in the industrial investment space market were found to be not sufficiently significant to allow either of them to unilaterally increase industrial rents. The barriers to entry are mostly regulatory and tenants have some bargaining power. 

CCS also found that, similar to the analysis of collective dominance, the lack of transparency in tenancy terms, the heterogeneity of industrial properties and the fragmentation of the market make co-ordination between players in the market difficult.

Based on the above findings, CCS concluded that there is no evidence to support the merger hypothesis.



Section 47 does not apply to exploitative pricing

In the CCS Paper, CCS made it clear that section 47 of the Competition Act (“CA”) does not apply to price increases per se, and noted that the CA has no equivalent to the European Union’s Article 102 provision against exploitative pricing.


This is the most affirmative stand that CCS has taken on this issue to date, although it has in the past indicated that it is not a price regulator. A price increase will however be caught under section 47 of the CA when it is a result of exclusionary business practices that are meant to foreclose the market to competitors.

Collective dominance explained

This study is also interesting for CCS’s analysis of collective dominance, which it had only previously briefly discussed in the Section 47 Guidelines.

According to CCS, a dominant position may be held collectively when two or more undertakings are linked in such a way that they adopt a common 
policy in the relevant market. For example, the undertakings might adopt a similar pricing policy without explicitly agreeing on price. This is sometimes called tacit co-ordination.

This position is further elucidated in Compagnie Maritime Belge Transports SA v. Commission of the European Communities [2000] E.C.R. I-1365 where the European Court of Justice held that the existence of an agreement or links in law is not necessary for a finding of collective dominance. It is based on connecting factors that depend on an economic assessment of the structure of the 


In assessing joint dominance, CCS studied the same three factors as that out of which coordinated effects would arise from a merger, i.e., sufficient market transparency to monitor other players’ conduct, sustainable and enforceable tacit co-ordination, and predictability in competitor and consumer behaviour. In the two analyses, CCS found that these factors did not exist in the industrial property market, and concluded that both collective dominance and coordinated effects were therefore unlikely to arise under prevailing market conditions.


For further information, please contact:
Cavinder Bull, Partner, Drew & Napier
Lim Chong Kin, Director, Drew & Napier
Ng Ee Kia, Director, Drew & Napier


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