Rents, prices of Singapore industrial space rise for 10th straight quarter: JTC

Citi Commercial Pte Ltd

RENTS and prices of Singapore industrial space continued to rise for the tenth straight quarter in the first quarter of 2023 despite a fall in transaction volumes and occupancy rates, according to JTC’s quarterly market report released on Thursday (Apr 27). 

The increase comes on the back of new and diverse manufacturing activities that have started, or will soon begin, operations, said Leonard Tay, Knight Frank’s head of research. He added that this is injecting vitality into a deteriorating outlook for manufacturing and exports.

Industrial rents rose 2.8 per cent quarter on quarter and 8.8 per cent year on year. Rents were up 3 per cent in Q1 for both multiple-user factories and single-user factories. Meanwhile, warehouses and business parks saw a 2.9 per cent and 0.6 per cent increase in rents respectively. 

On a year-on-year basis, rents for multiple-user factories and single-user factories grew 10.5 per cent and 6.9 per cent, respectively. Warehouse rents rose 9.4 per cent and business park rents increased 2.6 per cent. 

Prices for industrial space gained 1.5 per cent on the quarter and 6.9 per cent on the year. Huttons’ senior director of research Lee Sze Teck noted that such prices have moderated for the second straight quarter. In the previous quarter, they increased 1.7 per cent quarter on quarter, and 7.5 per cent year on year.

In Q1, multiple-user factories and single-user factories saw prices rise 2.1 per cent and 0.9 per cent quarter on quarter respectively. Year on year, their prices increased 8.4 per cent and 4.8 per cent respectively. 

The rise in prices comes despite a drop in transaction volumes by 15 per cent from the previous year. 

Overall occupancy rate fell 0.6 percentage point quarter on quarter and 1 percentage point from the year-ago period to 88.8 per cent in Q1. JTC attributed this drop to new supply continuing to exceed new demand, with new completions remaining strong in Q1. 

The total available stock of industrial space rose to 52.3 million square metres (sq m) at the end of Q1, up 357,000 sq m from the last quarter.

Meanwhile, total occupied stock increased by 5,000 sq m in Q1 from the previous quarter. This was a smaller rise in demand compared to the increase of 268,000 sq m last quarter. 

In the business park segment, vacancy rates rose by 1.2 percentage points to 18.7 per cent, the highest since the third quarter of 2016, said Edmund Tie’s head of research and consulting Lam Chern Woon. Rents also grew at the slowest pace this quarter. 

The segment’s relative weakness reflects the wide consolidation of corporate needs in the office sector, due to rising manpower costs and business uncertainties, he added.

Although the multiple-user segment had positive demand of 104,000 sq m, Tricia Song, CBRE’s head of research in South-east Asia, noted that the segment’s occupancy rate dipped by 0.2 percentage point to 88.9 per cent. This was because new supply still exceeded new demand for the quarter. 

“CBRE Research believes that this could be due to a two-tiered industrial property market, as occupiers are attracted by high-quality industrial space due to flight to quality,” she said. Some occupiers also renewed their leases at older industrial spaces due to cost considerations.

During the quarter, JTC allocated a total of 83,500 sq m of ready-built facilities (RBF) spaces to industrialists. This includes 60,000 sq m of high-rise spaces and 15,500 sq m of land-based factory space. About 77 per cent of the high-rise space allocated was in JTC’s newer developments, such as TimMac @ Kranji, Kranji Green, and JTC Bedok Food City.

Total RBF returns in Q1 were 47,200 sq m, of which 19,500 sq m was land-based factory space while 18,700 sq m was for high-rise spaces. JTC said about 45 per cent of the total returns were due to natural expiries or companies consolidating their operations. 

JTC expects one million square metres of industrial space to be completed in the remaining three quarters of this year, with another 1.7 million sq m in 2024.

Supply is expected to outpace demand in the near-term against a backdrop of higher borrowing costs and a weaker economic outlook, said Lam of Edmund Tie.

Rental growth for multiple-user factories is hence expected to soften between 3 per cent and 5 per cent this year, he said. Industrial rents, however, are forecast to be supported by sustained leasing demand for cold-chain logistics and life sciences. 

For the warehouse segment, he said that rents are projected to climb by 6 per cent in 2023. Demand will be supported by e-commerce growth, stockpiling requirements, as well as demand from food manufacturers and third-party logistics operators, he added. 

JTC predicts that an additional 2.5 million sq m of industrial space will be completed between 2024 and 2026. This translates to an average annual supply of about 0.9 million sq m from now until the end of 2026. 

In contrast, the average annual supply and demand of industrial space was around 0.8 million sq m and 0.7 million sq m respectively over the past three years. 

Knight Frank’s Tay said that the pace of prices and rents are likely to moderate in the next couple of quarters, although a marginal growth of 1 per cent to 3 per cent can still be expected for the year. 

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